annex i annual corporate governance report … · on 23 november 2017, the company notified the...

ANNEX I

ANNUAL CORPORATE GOVERNANCE REPORT

FOR LISTED PUBLIC LIMITED COMPANIES

ISSUER'S IDENTIFICATION

FISCAL YEAR CLOSING DATE

TAX CODE

PHARMA MAR, S.A.

AVENIDA DE LOS REYES 1, POLÍGONO INDUSTRIAL LA MINA, 28770

COLMENAR VIEJO (MADRID)

REGISTERED OFFICE

COMPANY NAME

A-78267176

31/12/2017

2

CAPITAL STRUCTURE

A.1 Please complete the table below with details on the company's share capital:

Date of Last

Change Share Capital (€) Number of Shares

Number of Voting

Rights

18/05/2017 11,132,464.35 222,649,287 222,649,287

Please specify whether there are different classes of shares with different associated rights:

Yes No

A.2 Please list the company’s significant direct and indirect shareholders at year end, excluding any board

members:

Name of Shareholder

Number of

Direct Voting

Rights

Number of

Indirect Voting

Rights

% of Total

Voting Rights

SANDRA ORTEGA MERA 0 11,132,633 5.00%

SAFOLES, S.A. 8,615,205 0 3.87%

Name of Indirect Shareholder Via: Name of Direct Shareholder Number of

Voting

Rights

SANDRA ORTEGA MERA ROSP CORUNNA PARTICIPACIONES

EMPRESARIALES, S.L.

11,132,633

Please specify the most significant changes in the shareholding structure during the fiscal year:

A.3 Please complete the following tables with details on those board members with voting rights in the

company:

Name of Director

Number of

Direct Voting

Rights

Number of

Indirect Voting

Rights

% of Total

Voting Rights

ANA PALACIO VALLELERSUNDI 18,900 0 0.01%

JAIME ZURITA SAÉNZ DE NAVARRETE 10,388 0 0.00%

CARLOS SOLCHAGA CATALÁN 0 0 0.00%

PEDRO FERNÁNDEZ PUENTES 1,386,869 8,615,205 4.49%

MONTSERRAT ANDRADE DETRELL 10,354,841 0 4.65%

JOSÉ MARÍA FERNÁNDEZ SOUSA-FARO 14,318,261 10,354,841 11.08%

ROSP CORUNNA PARTICIPACIONES EMPRESARIALES, S.L. 11,132,633 0 5.00%

JEFPO, S.L. 0 0 0.00%

EDUARDO SERRA Y ASOCIADOS, S.L. 9,538 0 0.00%

Name of Indirect Shareholder Via: Name of Direct Shareholder Number of

Voting

Rights

PEDRO FERNÁNDEZ PUENTES SAFOLES, S.A. 8,615,205

ANNUAL CORPORATE GOVERNANCE REPORT FOR LISTED PUBLIC LIMITED COMPANIES

A

X

3

JOSÉ MARÍA FERNÁNDEZ SOUSA-FARO MONTSERRAT ANDRADE DETRELL 10,354,841

Please complete the following tables with details on the company’s board members that hold rights

over the company's shares:

A.4 If applicable, please specify any family, commercial, contractual or corporate relationships that exist

among significant shareholders to the extent that they are known to the company, unless they are

insignificant or arise in the ordinary course of business:

Name of Related Party

JOSÉ MARÍA FERNÁNDEZ SOUSA-FARO

MONTSERRAT ANDRADE DETRELL

Type of Relation: Family

Brief Description:

José María Fernández Sousa-Faro is in a community property marriage with Montserrat

Andrade Detrell, who is also a significant shareholder of the Company.




Type of Relation: Family

Brief Description:

Montserrat Andrade Detrell is in a community property marriage with José María Fernández

Sousa-Faro, who is also a significant shareholder of the Company.

A.5 If applicable, please specify any commercial, contractual or corporate relationships that exist between

significant shareholders and the company and/or its group, unless they are insignificant or arise in the

ordinary course of business:



PHARMA MAR, S.A.

Type of Relation: Contractual

Brief Description:

José María Fernández Sousa-Faro is the Executive Chairman of Pharma Mar, S.A. and has

signed an agreement with the company for the provision of executive services. The Board of

Directors of Zeltia, S.A. granted prior approval to his execution of said agreement in its

meeting on 26 February 2015, at the proposal of its Appointments and Compensation

Committee, as required by Article 249 of the Spanish Capital Corporations Law (Ley de

Sociedades de Capital - LSC), by the majority required therein. Said agreement (in which

Pharma Mar, S.A. succeeded Zeltia, S.A. in its contractual position as a result of the takeover

merger of Zeltia, S.A. by Pharma Mar, S.A.) details those items for which the top executive

may be compensated for performing his executive duties (fixed annual compensation, variable

annual compensation, special bonuses, attendance allowances, severance pay for termination

of the agreement based on causes attributable to the company).

% of Voting Rights Held by the Board of Directors 20.59%

4


SAFOLES, S.A.

PHARMA MAR, S.A.

Type of Relation: Contractual

Brief Description:

The controlling shareholder of SAFOLES, S.A., Pedro Fernández Puentes, is an executive

director and Vice Chairman of the Board of Directors of Pharma Mar, S.A. and, as of 31

December 2017, formed part of its employee workforce.

A.6 Please specify whether the company has been notified of any shareholder agreements that may affect

it, in accordance with Articles 530 and 531 of the Spanish Capital Corporations Law. If so, please

provide a brief description of such agreements and list the shareholders they bind:

Yes X No

Parties to the Shareholder Agreement

SPECIALISED THERAPEUTICS INVESTMENTS PTY LTD ATF THE SPECIALISED THERAPEUTICS UNIT TRUST

PHARMA MAR, S.A.

% Share Capital Affected: 0.20%

Brief Description of the Agreement:

See section H.1

Please specify whether the company is aware of any existing initiatives agreed by and among its

shareholders. If so, please provide a brief description:

Yes No X

If any of the aforementioned agreements or agreed initiatives have been modified or terminated during

the year, please expressly indicate such circumstances below:

A.7 Please specify whether any natural or legal person exercises or may exercise control over the

company in accordance with Article 4 of the Spanish Securities Market Law (Ley del Mercado de

Valores). If so, please provide details:

Yes No X

Observations

A.8 Please complete the following tables on the company’s own shares:

At year end:

5

X

Number of Direct Shares Number of Indirect Shares (*) Total Percentage of Share Capital

1,373,745 165 0.62%

(*) Via:

Name of Direct Shareholder Number of Direct Shares

SYLENTIS, S.A. SOCIEDAD UNIPERSONAL 165

Total: 165

Please detail any significant variations during the year in accordance with Royal Decree 1362/2007:

Explain the significant variations

On 23 November 2017, the company notified the CNMV that its acquisitions of own shares, taken as a whole, since the previous

notification, made on 28 October 2016, surpassed 1 percent of the voting rights of the company.

A.9 Please describe the conditions and term of the current mandates in force made by the general

shareholders meeting to the board of directors to issue, repurchase or transfer own shares.

See section H.1

A.9.bis Estimated floating capital:

%

Estimated floating capital 78.79

A.10 Please identify any restrictions on the transfer of securities and/or any other restrictions on voting

rights. In particular, please identify whether there are any types of restrictions which could prevent the

acquisition of control in the company through acquiring shares in the market.

Yes No

Description of the restrictions

Article 18 of the Bylaws establishes the right of shareholders with at least 100 shares, notwithstanding the right of shareholders with

fewer shares to form groups with other shareholders in identical circumstances to accumulate the required number of shares, to attend

the General Shareholders Meeting.

In accordance with Article 25.2 of the Bylaws, as regards calculating votes, each share present in person or by proxy at the General

Shareholders Meeting shall have the right to one vote, excluding non-voting shares, in accordance with the provisions of law. It is worth

noting in this regard that the Company has resolved on the issuance of non-voting shares.

See additional information in section H.1

A.11 Please indicate whether the general shareholders meeting has resolved to adopt measures to

neutralize a takeover bid pursuant to the provisions of Law 6/2007.

Yes No

If so, please explain the measures approved and the terms under which the restrictions would cease to

apply:

A.12 Please specify whether the company has issued securities that were not traded on a regulated market

within Europe.

X

6

X

X

X

Yes No

If so, identify the different share classes and list the rights and obligations inherent in each class.

At a meeting on 19 May 2015, the Board of Directors of Zeltia, S.A. resolved to issue simple bonds through its incorporation to the

Spanish Alternative Bond Market on 8 July 2015, the primary terms and conditions of which are as follows:

a) The nominal amount of the issue was seventeen million euros (€17,000,000), represented by 170 simple bonds;

b) The bonds will mature in 12 years from the payout date for the issue (7 July 2015);

c) The issue was aimed at a single qualified Spanish investor, through private placement;

d) The bonds were issued at par with a unit par value of one hundred thousand euros (€100,000) and are represented by book

entries. The company Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.,

“IBERCLEAR”, and its member entities are responsible for recording the book entries for these bonds in the company's records;

e) The bonds accrue annual nominal fixed interest of 4.75%, payable for completed years counting from the payout date;

f) The Company guarantees its obligations deriving from the bonds with its full equity and has not granted any specific guarantee;

g) The terms and conditions of the bonds are governed by Spanish law;

The aforementioned bond issue was assumed by Pharma Mar, S.A. by virtue of the takeover merger of Zeltia, S.A. by Pharma Mar, S.A.

GENERAL MEETING

B.1 Please identify any differences from the minimums provided for in the Spanish Capital Corporations

Law (LSC) as regards the quorum for holding the general shareholders meeting and, if any, please

provide details.

Yes No

% quorum different from that

established in Art. 193 LSC for general

matters

% quorum different from that

established in Art. 194 LSC for

special cases under Article 194 LSC

Quorum required in 1st call

50.00% 50.00%

Quorum required in 2nd call

0.00% 25.00%

Description of differences

The quorum necessary to hold the General Shareholders Meeting is established in Article 20 of the Bylaws and, in the same manner,

in Article 8 of the General Shareholders Meeting Regulations.

Article 20.1 of the Bylaws, unlike Article 193.1 LSC, which sets a minimum quorum of twenty-five percent of the subscribed voting

capital in first call, establishes a minimum quorum for the General Shareholders Meeting, whether annual or special, of attendance

of shareholders representing at least fifty percent of the subscribed voting capital in first call. In second call, the General Meeting

will be validly assembled no matter the share capital represented.

Therefore, the system provided for in the Company's Bylaws differs from the minimums provided for in the LSC, as the Bylaws require

a quorum of fifty percent of subscribed voting capital in order to hold a General Shareholders Meeting in first call, regardless of the

type of resolutions being addressed.

B.2 Please specify and, where appropriate, provide details on any differences from the system set out in

the Spanish Capital Corporations Law (LSC) for adopting corporate resolutions.

Yes No

Please describe the differences as compared to the system set out in the LSC.

B

7

X

Reinforced majority difference from

that established in Article 201.2

LSC for cases provided in Art.

194.1 LSC

Other cases of reinforced majority

% established by the

company for adopting

resolutions

75.00% 0.00%

Describe the differences

The adoption by the Company's General Shareholders Meeting of the resolutions referred to in Article 194.1 LSC do not require a

special majority beyond that established in Article 201.2 LSC, except as regards the amendment to Article 25 of the Bylaws, on the

adoption of resolutions, the approval of which requires a qualified majority vote of 75% of the capital present, in person or by proxy,

both in first and second call.

Article 25.3 of the Bylaws states that no shareholder may cast a number of votes exceeding 25% of total voting capital from time to

time, even when the number of shares held thereby is greater than the aforesaid capital percentage. This restriction shall also apply

to the maximum number of votes that two or more shareholding companies belonging to the same corporate group may cast, whether

jointly or separately. This restriction shall also apply to the maximum number of votes that a natural person shareholder and the entity

or entities, also shareholders, controlled thereby may cast, whether jointly or separately.

B.3 Please list the rules applicable to the amendment of the company’s bylaws: In particular, describe the

majorities required to amend the bylaws and, as the case may be, the rules established to protect

shareholders' rights in the amendment of the bylaws.

In general, Article 50 of the Bylaws establishes the following:

"The amendment of the Bylaws shall be resolved upon by the General Shareholders Meeting and shall require compliance with the following requirements:

1. The directors or, as the case may be, the shareholders issuing the proposal shall draft the full contents of the proposed

amendment and shall issue a written report justifying said amendment.

2. The proposed amendments shall be clearly stated in the meeting notice, which shall also specify the shareholders' right to inspect, at

the registered offices, the full text of the proposed amendment and the report on said amendment, as well as to request that said

documents be delivered or sent to them free of charge.

3. The resolution shall be adopted by the General Shareholders Meeting in compliance with the quorums established by law and these

Bylaws for holding the Meeting and adopting resolutions.

4. In any case, the resolution shall be drawn up as a public deed and registered in the Mercantile Registry and published in the

Official Mercantile Registry Bulletin."

There are no special requirements beyond those established in the legislation in force for the amendment of the corporate Bylaws,

except as regards the amendment of Article 25, on the adoption of resolutions. As indicated in section B.2, supra, the amendment of

said Article 25 requires that the resolution be adopted by a qualified majority of 75% of the capital present, in person or by proxy, in

both first and second call.

B.4 Please provide details on attendance at the general shareholders meetings held during the year

reported on in this report and during the preceding fiscal year:

Attendance Information

General

Meeting

Date

% Physical

Attendanc

e

% by

Proxy

% Distance Voting

Total Electronic Vote Other

23/06/2016 22.78% 15.18% 0.00% 0.00% 37.96%

29/06/2017 22.99% 15.77% 0.00% 0.00% 38.76%

B.5 Please specify whether the bylaws establish any restrictions on the minimum number of shares

required to attend the general shareholders meeting:

Yes No

Number of shares required to attend the general meeting 100

8

B.6 Section repealed.

B.7 Please provide the URL and access route for the information on corporate governance and the general

shareholders meeting on the company's website, as required to be made available to shareholders

through the Company's website

Information on the Company's corporate governance can be accessed through Pharma Mar, S.A.'s website (www.pharmamar.com) by

clicking on the "Shareholders and Investors" heading on the main page and under that heading, within the section titled "Corporate

Governance."

Furthermore, information on the company's General Shareholders Meetings held by virtue of its status as a listed company can be

accessed through Pharma Mar, S.A.'s website (www.pharmamar.com) by clicking on the "Shareholders and Investors" heading on the

main page and under that heading, within the section titled "General Shareholders Meeting."

COMPANY'S ADMINISTRATION STRUCTURE

C.1 Board of Directors

C.1.1 Maximum and minimum number of directors provided for in the corporate bylaws:

Maximum Number of Directors 15

Minimum Number of Directors 3

C.1.2 Please complete the following table with details on the board members:

Director Name Representative

Director

Category Position

on the

Board

Date of

First

Appt.

Date of

Most

Recent

Appt.

Appointment

Procedure

ANA PALACIO

VALLELERSUNDI

Independent DIRECTOR 28/07/2009 16/09/2014 GENERAL

SHAREHOLDERS

MEETING

RESOLUTION

JAIME ZURITA SAÉNZ

DE NAVARRETE


SHAREHOLDERS

MEETING

RESOLUTION

CARLOS SOLCHAGA

CATALÁN


SHAREHOLDERS

MEETING

RESOLUTION

PEDRO FERNÁNDEZ

PUENTES

Executive VICE CHAIRMAN 30/04/1986 28/06/2013 GENERAL

SHAREHOLDERS

MEETING

RESOLUTION

MONTSERRAT

ANDRADE DETRELL

Shareholder-Appointed

DIRECTOR 30/06/2015 30/06/2015 GENERAL

SHAREHOLDERS

MEETING

RESOLUTION

JOSÉ MARÍA

FERNÁNDEZ SOUSA-

FARO

Executive CHAIRMAN 30/04/1986 28/06/2013 GENERAL

SHAREHOLDERS

MEETING

RESOLUTION

ROSP CORUNNA

PARTICIPACIONES

EMPRESARIALES, S.L.

JOSÉ

FRANCISCO

LEYTE

VERDEJO


DIRECTOR 16/07/2013 16/07/2013 GENERAL

SHAREHOLDERS

MEETING

RESOLUTION

JEFPO, S.L. JOSÉ FÉLIX

PÉREZ- ORIVE

CARCELLER

Other External DIRECTOR 30/06/2015 30/06/2015 GENERAL

SHAREHOLDERS

MEETING

RESOLUTION

EDUARDO SERRA Y

ASOCIADOS, S.L.

EDUARDO

SERRA

REXACH


SHAREHOLDERS

MEETING

RESOLUTION

Total Number of Directors 9

C

9

Please list any directors that were removed from the board of directors during the reporting

period:

C.1.3 Please complete the following tables with information on the board members and their respective categories:

EXECUTIVE DIRECTORS

Name of Director Position in the Company

JOSÉ MARÍA FERNÁNDEZ SOUSA-FARO CHAIRMAN

PEDRO FERNÁNDEZ PUENTES VICE CHAIRMAN

Total Number of Executive Directors 2

% of Total Board 22.22%

SHAREHOLDER-APPOINTED EXTERNAL DIRECTORS

Name of Director Name of significant shareholder represented by the

director or who proposed the director's appointment

MONTSERRAT ANDRADE DETRELL MONTSERRAT ANDRADE DETRELL

ROSP CORUNNA PARTICIPACIONES EMPRESARIALES,

S.L.

SANDRA ORTEGA MERA

Total Number of Shareholder-Appointed Directors 2


INDEPENDENT EXTERNAL DIRECTORS

Name of Director:

ANA PALACIO VALLELERSUNDI

Profile:

B.A. in Law, Sociology and Political Science (Award for Academic Achievement). She holds an Honorary

Doctorate Degree from Georgetown University and, in 2016, she was granted the O’Connor Justice Prize.

Career Path

As a lawyer specializing in International and European Union Law, Arbitration and Mediation, she founded

the law firm Palacio y Asociados.

Member of the European Parliament (1994–2002), where she presided over the Legal Affairs and Internal

Market Committee, the Justice and Home Affairs Committee and the Conference of Committee Chairs.

Spanish Minister of External Affairs (2002–2004). Spanish Parliament Member in its 8th Term, during

which time she chaired the Mixed Party Committee in the Spanish Parliament and in the Senate of the

European Union (2004-2006).

Senior Vice Chairwoman and General Counsel of the World Bank Group (2006–2008).

Secretary General of the International Centre for Settlement of Investment Disputes (ICSID).

10

In March 2012, she was appointed as the Elected Director of the State Council, a position which she

continues to hold today.

Other Boards of Directors

Independent Coordinating Director of Enagás.

Member of the lnternational Advisory Board of lnvestcorp.

Other Positions

Member of the Board of various research centers and international and foreign public institutions,

including:

- MD Anderson Cancer Center.

- Atlantic Council (United States).

- lnstitute for Strategic Dialogue.

- French Insurance Advisory and Strategic Committee (CORA).

- World Economic Forum's Global Agenda Council.

In Spain, she is a member of the Scientific Board of the Elcano Institute and of the Board of Trustees of

the Foundation for Social Analysis and Research.

Visiting professor at the Edmund E. Walsh School of Foreign Service of Georgetown University since

2014.

Name of Director:

JAIME ZURITA SAÉNZ DE NAVARRETE

Profile:

Career Path

Doctor in Law and Professor of Commercial Law.

Current Occupation

Practicing lawyer.

Name of Director:

CARLOS SOLCHAGA CATALÁN

Profile:

B.A. in Economic and Business Sciences from the Complutense University (1966). Completed graduate

studies at the Alfred P. Sloan School of Business of the Massachusetts Institute of Technology (MIT)

(1971).

Career Path

He started his professional career at the Bank of Spain, moving on to work with the National Institute of

Industry and the Vizcaya Bank, where he was appointed as director of the research department and

adviser to the chairman

Minister of Industry and Energy (1982–1985) and subsequently as the Minister of Economy and Taxation

(1985–1993). From 1991 to 1993, he served as the Chairman of the Internal Committee of the

International Monetary Fund (IMF). He also worked in the House of Representatives (1980–1994) and

served as the Chairman of the socialist parliament group in 1993 and 1994.

11

Current Occupation

Chairman of Solchaga Recio & Asociados.

Honorary Chairman of the Euroamerica Foundation.

Vice Chairman of the Royal Board of Trustees of the Reina Sofia Museum.

Chairman of the Architectural and Societal Foundation.

Chairman of the Advisory Board of the law firm Roca & Junyent.

Member of the Scientific Board of the Royal Elcano Institute.

Other Boards of Directors

Director of Cie Automotive, S.A.

Name of Director:

EDUARDO SERRA Y ASOCIADOS, S.L.

Profile:

B.A. in law from the Complutense University of Madrid. In 1974, he was registered as a Spanish State

Attorney under qualification no. 1.

Career Path

He has held various positions in the public sector: head of department of the Ministry of Industry and

Energy (1977–1979); General and Board Secretary of the National Institute of Industry (1979–1982);

Director of the Bank of Industrial Credit (1979–1982); Director of Butano (1979–1982); Vice Chairman of

Astilleros Españoles (1979–1982); Chairman of Auxina (1979–1982); Deputy Secretary of Defense

(1982–1984); State Secretary of Defense (1984–1987); Director of the National Institute of Industry

(1984–1987); and Director of the National Institute of Hydrocarbons (1984–1987).

Minister of Defense from 1996 to 2000.

In the private sector, from 1987 to 1996, he was appointed as the Chairman of Telettra España; Vice

Chairman and Chairman of Cubiertas Mzov; Chairman of Peugeot-Talbot Spain; and Chairman of Airtel.

From 2000-2006, he served as the Chairman of UBS España. He has served as a member on the Board

of Directors of Zeltia, S.A.

During his professional career he also served as the Vice Chairman and Chairman of the National

International Affairs and Foreign Policy Institute (INCIPE) (1989–1996) and was the Chairman of the

Royal Board of Trustees of the Prado Museum (2000–2004), Founding Chairman of the Royal Elcano

Institute (2001–2005) and Chairman of the Everis Foundation (2005–2014).

Current Occupation

Vice Chairman of EVERIS.

Chairman of the consulting firm Eduardo Serra y Asociados, S.L.

Member of the Board of Directors of Pharma Mar, S.A.

Director, adviser and trustee in several non-profit organizations.

Chairman of Park Row Digital S.L.

Total Number of Independent Directors 4


12

Please indicate whether any independent director receives any amount or benefit beyond its

compensation as a director from the company or any group company or whether any

independent director holds or held a business relation during the last fiscal year with the

company or any group company, whether on its own behalf or as a significant shareholder,

director or senior executive of the entity that holds or held said relation.

If applicable, please include a reasoned statement from the board on the reasons they believe

such director is able to perform his/her duties as an independent director.

OTHER EXTERNAL DIRECTORS

Please list other external directors and discuss the reasons they could not be considered

shareholder-appointed or independent directors as well as any connections they may have

with the company, its officers or its shareholders:

Name of Director:

JEFPO, S.L.

Related company, officer or shareholder:

PHARMA MAR, S.A.

Rationale:

José Félix Pérez-Orive Carceller served, in his individual capacity, as a director of Pharma Mar since he

was first appointed on 9 June 1993 up until 30 June 2015, on which date JEFPO, S.L. was appointed as

a director and it designated José Félix Pérez-Orive Carceller to serve as its natural representative to

exercise the duties inherent in its position as a member of the Board of Directors.

It is worth noting that on 5 May 2014, Zeltia, S.A. and JEFPO, S.L. executed an agreement for the

provision of consulting and mediation services in which Pharma Mar, S.A. succeeded Zeltia, S.A. in its

contractual position as a result of the takeover merger of Zeltia, S.A. by Pharma Mar, S.A.

Furthermore, and in accordance with the information included in the official registers of the CNMV,

JEFPO, S.L. does not hold any ownership interest in the Company, although José Félix Pérez-Orive

Carceller holds 2684 shares (representing 0.001%), according to the information he reported to the

CNMV.

Based on all of the above and on the provisions of Article 529 duodecies 4 LSC (in particular, the

requirement that directors who have served for 12 consecutive years cannot be deemed independent),

the Appointments and Compensation Committee classified JEFPO, S.L. as an external director of the

Company.

Total Number of Other External Directors 1


Please specify any variations, if any, that have occurred in each director category during the

year:

C.1.4 Complete the following table with information on the number of female directors over the last 4

fiscal years (including their category):

13

Number of Female Directors % of Total Directors of Each Category

Fiscal

Year

2017

Fiscal

Year

2016

Fiscal

Year

2015

Fiscal

Year

2014

Fiscal

Year

2017

Fiscal

Year

2016

Fiscal

Year

2015

Fiscal

Year

2014

Executive 0 0 0 N/A 0.00% 0.00% 0.00% N/A


1 1 1 N/A 11.11% 11.11% 11.11% N/A

Independent 1 1 1 N/A 11.11% 11.11% 11.11% N/A

Other External 0 0 0 N/A 0.00% 0.00% 0.00% N/A

Total: 2 2 2 N/A 22.22% 22.22% 22.22% N/A

C.1.5 Please explain any measures that were adopted with a view to attaining the required number of

female directors to ensure a balance between male and female directors on the board of

directors.

C.1.6 Please explain any measures followed by the appointments committee to ensure that the

selection procedures did not have any implicit flaws that would prevent the selection of female

directors and to ensure that the company specifically seeks out and includes women with the

desired professional profile among the potential candidates:

If despite the measures taken, as the case may be, there are few or no female directors, please

explain the reasons that justify such circumstances:

As of the date this Report was drafted, the Board of Directors of Pharma Mar had two women among its nine members.

There are no requirements to act as a Board member which could constitute an implicit flaw preventing women from forming

part of such body. Including women on the Company's Board of Directors and looking for women to carry out the position of

directors of the Company is a reality, as evidenced by the established Director selection policy, and there are no obstacles

that would prevent women from becoming directors of the Company. The Company's Board of Directors, following the advice

and report of the Appointments and Compensation Committee, shall analyze the needs of the Company and its Group

companies when covering vacancies in director positions. Any director may suggest candidates for the position of director,

provided said candidates meet the requirements set forth in the selection policy, and the selection process shall not suffer

Article 8.4 of the Board Regulations states that the Board of Directors shall aim to develop Director selection policies and

procedures that favor diversity as regards gender, experience and knowledge, ensuring that there are no implicit flaws that

could result in any type of discrimination and, in particular, that promote the selection of female Directors.

In this regard, Article 14.2.b) of the Board of Directors Regulations establishes the duty of the Appointments and

Compensation Committee to set representation goals for the least-represented gender on the Board of Directors and to

develop guidelines on how to reach such objective.

Furthermore, in accordance with the director selection policy approved by the Company's Board of Directors, the Board shall

promote the objective of having female directors account for at least thirty percent of the total number of board members by

2020. As of the date this Report was drafted, the Board of Directors of Pharma Mar had two women among its nine members

(22.22% women).

Explanation of measures

The Company does not have any requirement for membership on the Board which could constitute an implicit flaw preventing

the selection of female directors. In this regard, Article 8.4 of the Board of Directors Regulations states that the Board of

Directors shall aim to develop a Director selection policy and procedures that favor diversity as regards gender, experience

and knowledge, ensuring that there are no implicit flaws that could result in any type of discrimination and, in particular, that

promote the selection of female Directors.

It is worth noting that the current directors of the Company were appointed before the Company was a listed company. As

set forth in the director selection policy approved by the Company's Board of Directors, candidates meeting the conditions

set forth in section 4 of said policy will be identified, i.e. qualified professionals of good repute with recognized abilities,

experience and proper training and whose appointment would contribute to diversity within the Board of Directors as

regards knowledge, experience, origins, nationalities and gender. In accordance with said policy, the company aims to have

female directors account for at least thirty percent of the total number of Board members by 2020.

It should also be noted that the Company did not appoint any new Board members in the year reported on in this Report

(2017).

Explanation of measures

Explanation of the reasons

14

from any implicit biases that could result in any type of discrimination.

In any case, candidates whose appointment would contribute to diversity within the Board of Directors as regards knowledge,

experience, origins, nationalities and gender will be promoted. The Pharma Mar Group shows a continuing concern for the

participation of women in management positions at all levels, as evidenced by the fact that there are currently two women on

the Board of Directors.

Furthermore, in 2017, the Pharma Mar Group's workforce comprised 53.51% women and women accounted for 36.26% of

executive positions.

C.1.6 bis Please explain the conclusions made by the appointments committee as regards

verification of compliance with the director selection policy. And, in particular, explain how said

policy promotes the objective of having female directors account for at least 30% of the total

number of board members by 2020.

C.1.7 Please explain the form of representation of significant shareholders on the board of directors.

José María Fernández Sousa-Faro is the Chairman of the Board of Directors and the top executive and majority

shareholder of the Company, holding a direct participation of 6.43% in share capital and an indirect participation of 4.65%.

Montserrat Andrade Detrell is a director and holds a direct participation of 4.65% in share capital and an indirect

participation of 6.43%.

Pedro Fernández Puentes is the Vice Chairman of the Board of Directors and an executive of the Company, holding a total

participation of 4.49% in share capital (direct participation of 0.62% and indirect participation of 3.87% through SAFOLES,

S.A., a company of which he is the controlling shareholder).

Sandra Ortega Mera is a significant shareholder of the company through the company ROSP CORUNNA

PARTICIPACIONES EMPRESARIALES, S.L., who holds an indirect participation of 5.00% in share capital. The company

ROSP CORUNNA PARTICIPACIONES EMPRESARIALES, S.L., Member of the Board of Directors of Pharma Mar, S.A., is

a wholly-owned subsidiary of ROSP CORUNNA S.L., of which Sandra Ortega Mera holds 89.23% of the share capital, as

recorded in the official registers of the CNMV.

C.1.8 If applicable, please explain the reasons for the appointment of any shareholder-appointed

directors at the request of shareholders with less than 3% of share capital:

Please specify whether formal requests from shareholders for membership on the board were

not honored when their ownership interest is equal to or exceeds that of other shareholders

whose proposal for shareholder-appointed directors was honored. If so, please explain why

the aforementioned requests were not met:

Yes No

C.1.9 Please specify whether any director has ceased to hold his or her position before completion of

his or her mandate, whether the director provided any explanation to the board, including

through what means, and, if provided in writing and addressed to the entire board, please

specify the reasons given thereby:

No members were appointed to the Board of Directors during fiscal year 2017 and, as such, no Director selection processes

were opened (no appointment, reappointment or removal of Directors took place during the year), in relation to which

compliance with the director selection policy should be verified. As previously mentioned and in accordance with said policy,

candidates meeting the conditions set forth in section 4 of said policy will be identified, i.e. qualified professionals of good

repute with recognized abilities, experience and proper training and whose appointment would contribute to diversity within the

Board of Directors as regards knowledge, experience, origins, nationalities and gender. On 31 December 2017, the number of

female directors represented 22.22% of the total number of Board members.

Explanation of conclusions

X

15

X

C.1.10 Please specify any powers delegated to the managing director(s):

Director's Name:


Brief Description:

José María Fernández Sousa-Faro holds a power of attorney by virtue of a deed granted on 13

November 1992 before the Madrid Notary Public, Antonio de la Esperanza Martínez- Radío, under

number 3694 of his official records, and may act for and on behalf of the company with the powers

granted to him, including but not limited to the following: (i) use of the corporate signature and

representation of the Company in its transactions with the Bank of Spain or with any other banking or

credit institution; (ii) resolve upon the execution of all types of deeds or agreements deemed necessary

or convenient for the performance of the corporate purpose and, in general, adopt resolutions on all

types of transactions and business that may be performed by the Company in accordance with the

Bylaws; and (iii) request and obtain for the Company, and acquire, dispose of and use patents,

privileges, licenses and any other rights related to the corporate purpose.

José María Fernández Sousa-Faro also currently provides executive services to the company by virtue of

an agreement executed on 26 February 2015 with Zeltia, S.A., in which Pharma Mar succeeded Zeltia by

operation of law as a result of the merger between the aforementioned companies in October 2015.

C.1.11 Please identify any board members who assume positions as directors or officers in other

companies in the group of which the listed company is the parent:

Director Name Name of group

company

Position

Executive

Duties?

JOSÉ MARÍA FERNÁNDEZ

SOUSA-FARO

GENOMICA, S.A. SOCIEDAD

UNIPERSONAL

CHAIRMAN OF

THE BOARD OF

DIRECTORS

YES

PEDRO FERNÁNDEZ

PUENTES

ZELNOVA ZELTIA, S.A. CHAIRMAN OF

THE BOARD OF

DIRECTORS

YES

C.1.12 Please specify the directors of the company, if any, that have notified the company of their

membership on the board of directors of other companies (excluding of other group

companies) listed on official securities markets in Spain:

Director Name Name of group

company Positi

on

ANA PALACIO

VALLELERSUNDI

ENAGAS, S.A. DIRECTOR

CARLOS SOLCHAGA CATALÁN CIE AUTOMOTIVE, S.A. DIRECTOR

PEDRO FERNÁNDEZ PUENTES INGERCOVER, S.A. SICAV CHAIRMAN

C.1.13 Please specify whether the company has established any rules on the number of boards on

which its directors can hold seats, providing details if applicable:

Yes No

16

C.1.14 Section repealed.

C.1.15 Please indicate the overall compensation of the board of directors:

Board of Directors Compensation (in thousands of euros) 3,227

Amount of accumulated pension rights of current directors (in thousands of euros) 628

Amount of accumulated pension rights of former directors (in thousands of euros) 0

C.1.16 Please identify senior managers that do not also serve as executive directors and indicate the

total compensation earned thereby during the year:

Name Position

MARÍA LUISA DE FRANCIA CABALLERO CHIEF FINANCIAL OFFICER

SEBASTIÁN CUENCA MIRANDA GENERAL AND BOARD SECRETARY

BELÉN SOPESÉN VERAMENDI DIRECTOR OF MARKET RESEARCH

JOSÉ LUIS MORENO MARTÍNEZ-LOSA DIRECTOR, INVESTOR RELATIONS AND CAPITAL

MARKETS

JUAN CARLOS VILLALÓN GÓMEZ INTERNAL AUDITOR

LUIS MORA CAPITÁN MANAGING DIRECTOR, ONCOLOGY BUSINESS

UNIT

Total Senior Management Compensation (in thousands of euros) 1,740

C.1.17 Please identify any Board members who are also Board members, management personnel or

employees of companies with significant ownership interests in the listed Company and/or

other Group companies:

Director Name Name of significant

shareholder Position

PEDRO FERNÁNDEZ PUENTES SAFOLES, S.A. SOLE DIRECTOR

Please detail any relevant relationships, other than those presented in the previous section,

between members of the board of directors and significant shareholders in the company

and/or group companies:

Name of the Associated Director:


Name of Significant Associated Shareholder:


Article 22.3 of the Board Regulations establishes that Directors may not be a member on more than four boards of directors of

public limited companies (sociedades anónimas) and of eight boards of directors of limited liability companies (sociedades de

responsabilidad limitada), not including the boards of those companies forming part of the Company's corporate group and of

the holding companies (sociedades patrimoniales) of the aforesaid Directors.

Explanation of rules

17

Description of the Relationship:

Spouses, married under a common property regime

Name of the Associated Director:


Name of Significant Associated Shareholder:


Description of the Relationship:

Spouses, married under a common property regime

C.1.18 Please specify whether the Board of Directors Regulations were amended during the year:

Yes No

C.1.19 Please specify the procedures for the appointment, reappointment, assessment and removal

of Directors: Provide details on the competent bodies, steps to follow and criteria applied in

each procedure.

See section H.1

C.1.20 Please explain to what extent the annual assessment of the Board of Directors led to

significant changes in the internal organization and procedures applicable to its activities:

C.1.20.bis Please describe the assessment process and the areas assessed by the board of directors

with the assistance, as the case may be, of an external consultant, as regards the diversity of

its composition and skills, functioning and composition of its committees, performance of the

chairman of the board of directors and the company's top executive and the performance and

contribution of each of the directors.

In accordance with Article 17 bis of the Company's Board of Directors Regulations, the Board is required to annually assess

work quality, conduct of its Chairman based on the report drafted for such purpose by the Appointments and Compensation

Committee, and the functioning of its Committees, following which the Board proposes an action plan to correct any

deficiencies identified. The Chairman of the Board of Directors is in charge of organizing and coordinating the aforementioned

assessment process with the Chairmen of the Committees. Assessment of the Executive Chairman's performance is directed

by the Coordinating Director.

The annual assessment of the Board for fiscal year 2017 was completed internally and led by the Chairmen of the various

Committees and by the Coordinating Director.

According to the report drawn up by the Appointments and Compensation Committee, the assessment process shows a

widespread view of effective functioning of the Board, a high level of commitment and dedication of all its directors, quality

debates and adequate time dedicated to matters being addressed as well as quality documentation submitted at the

meetings, and usefulness of the regular meetings with independent oncology experts.

Although this assessment did not result in any changes to the internal organization of the Board, the Appointments and

Compensation Committee did propose increased participation of scientific and technical personnel of the Company at the

Board meetings in 2018 with a view to helping the directors better understand and assess the strategic importance of certain

innovative oncology technologies.

Description of amendments

X

18

X

Assessment of the Board of Directors in 2017 was led by the Chairmen of the various Board Committees and by the

Coordinating Director, who delivered a survey to all of the directors with a view to assessing the effectiveness of the

operations of the Board and the performance of the Chairman and the directors. In particular, this survey addressed the

following areas: a) organization of the meetings; b) proceedings of the meetings; c) content of the meetings; d) director

training; and e) the role of the Board Chairman.

Based on the responses received, the Appointments and Compensation Committee drafted a report on the activities of and an

assessment of performance by the Board of Directors, the Board Chairman and the directors, which was submitted to the

Board of Directors for approval at its meeting on 28 February 2018. In view of this report, the Board of Directors proposed an

increase in participation at its meetings of the Company's scientific and technical personnel, as detailed in section C.1.20,

supra.

C.1.20.ter Provide detailed information, as applicable, on business relations between the consultant or

any group company with the company or any other group company.

N/A

C.1.21 Please specify the situations in which the Board members are required to resign.

Article 19.2 of the Board of Directors Regulations provides in such regard as follows:

"Directors shall tender their resignation to the Board of Directors and formalize the pertinent resignation, if deemed

appropriate by the Board, in the following cases:

(a) When they turn 75.

(b) If they are involved in any circumstance of incompatibility or prohibition provided by law, the Corporate Bylaws or these

Regulations.

(c) If their continued membership on the Board could put at risk or harm the Company's interests, credit or reputation.

(d) When they no longer hold an executive position to which their appointment was linked or, in general, when the

reasons for their appointment no longer exist (e.g. when the shareholder represented by a Director disposes of its

shareholding in the Company that motivated the Director's appointment).

(e) When the Director has missed four consecutive Board meetings without granting a proxy to another Board member.

The Board of Directors may only propose the removal of an Independent Director to the General Shareholders Meeting

before the period provided for in the Bylaws has lapsed and when the Director has not tendered his or her resignation after

having met any of the said circumstances referred to in this article or when any other just cause as determined by the

Board exists, following a report of the Appointments and Compensation Committee. In particular, just cause shall be

deemed to exist when the Director accepts additional obligations that prevent said Director from dedicating the required

time to the performance of its duties, breaches any duties inherent in its position or otherwise is in any circumstances that

prevent its independence. The Board of Directors may also propose the removal of Independent Directors as a result of

public offers of acquisition, merger or other similar corporate transactions that entail a change to the Company's capital

structure, provided such structural changes to the Board of Directors are a result of application of the proportionality criteria

set forth in corporate governance recommendations for listed companies in Spain."


C.1.23 Are qualified majorities other than those established by law required for any specific decision?:

Yes No

If so, please describe the differences:

In order for amendments to the Board Regulations to be valid, the relevant resolution must be adopted by a two-thirds

majority of the Directors in attendance, in accordance with the provisions of Article 3.4 of the Board Regulations.

Description of differences

19

X

X

C.1.24 Please state whether there are any specific requirements, other than those relating to

directors, to be appointed as the chairmen of the board of directors.

Yes No

C.1.25 Please specify whether the chair has a casting vote:

Yes No

C.1.26 Please specify whether the bylaws or the board regulations establish any limit as to the age of

the directors:

Yes No

Age limit for chair: Age limit for managing director: Age limit for director: 75

C.1.27 Please specify whether the bylaws or the board regulations establish any limit beyond that

provided by law to the mandate of independent directors:

Yes No

C.1.28 Please specify whether the bylaws or the board of directors regulations establish specific rules

for granting proxies on the board of directors, including as regards the manner for granting

proxies and, in particular, the maximum number of proxies that any single director may hold,

as well as whether they establish any restrictions on the category of director to which they can

be granted, beyond those legally mandated restrictions. If so, please briefly describe the rules.

The third paragraph of Article 36 of the Bylaws establishes in this regard that proxies shall be granted to other Directors in

writing or by e-mail and shall be made specifically for each Board meeting. No Director may hold more than three proxies. The

same requirement is also set forth in Article 17.1 of the Board Regulations.

As regards any restrictions on the category of directory to which proxies may be granted, the aforesaid Bylaw provision (and

Article 17.1 of the Board Regulations) states that, in accordance with Article 529 quáter 2 LSC, Non-Executive Directors

may only grant proxies to other Non-Executive Directors.

C.1.29 Please specify the number of meetings held by the board of directors during the year. In

addition, please identify the number of times the board met, if any, without the attendance of

the chairman. Proxies granted with specific instructions shall be considered in attendance for

calculation purposes.

Number of Board Meetings 10

Number of Board Meetings without Attendance of the Chairman 0

Article 36 of the Bylaws and Articles 10.5 and 17.2 of the Board of Directors Regulations provide that in the event of a tie,

the Chairman shall have the casting vote.

Matters for which there is a casting vote

X

X

20

If the chairman is an executive director, please indicate the number of meetings held without

the personal attendance or attendance by proxy of any executive directors and that were

presided over by the coordinating director.

Number of Meetings 0

Please specify the number of meetings held by the different board committees during the year:

Committee No. of Meetings

AUDIT COMMITTEE 8

APPOINTMENTS AND COMPENSATION COMMITTEE 7

EXECUTIVE COMMITTEE 7

C.1.30 Please specify the number of meetings held by the board of directors during the year in which

some of its members were not present. Proxies granted with specific instructions shall be

considered in attendance for calculation purposes.

Number of Meetings with Full Attendance 7

Attendance as a Percentage of Total Votes During the Year 96.66%

C.1.31 Please specify whether the annual individual and consolidated financial statements presented

to the board for approval were previously certified:

Yes No

Please specify, if applicable, the person/s who certified the individual and consolidated

financial statements of the company for their preparation by the board:

C.1.32 Please explain any mechanisms established by the board of directors to prevent the individual

and consolidated financial statements prepared by the board from being submitted to the

general meeting with a qualified audit opinion.

It is worth noting, first, that the audit reports on the individual and consolidated financial statements for fiscal year 2017 did

not include any reservations.

The mechanisms established by the Board of Directors are derived from the powers assigned to the Audit Committee which,

in accordance with Article 13.2 of the Board Regulations, include, inter alia: (i) the duty to oversee the effectiveness of the

Company's internal controls, internal audit and risk management systems, as well as to discuss any significant weaknesses

identified in the internal control system during the audit with the statutory auditor, all without compromising the independence

thereof; (ii) monitoring the process for drafting and presenting the required financial information and submitting

recommendations or proposals to the management body with a view to ensuring the integrity of such information; and (iii)

ensuring that the Board of Directors presents the financial statements to the General Shareholders Meeting without giving rise

to any restriction or reservation whatsoever in the audit report.

Furthermore, Article 32.4 of the Board Regulations, referring to the Board's relations with the auditors, establishes that the

Board of Directors shall draft a final and conclusive version of the financial statements such that no reservations are made

by the auditor. Nevertheless, the Board, in case of disagreement with the auditor's remarks, may reaffirm its own

perspective, but shall publicly explain the scope and content of the discrepancy.

C.1.33 Is the secretary of the board a director?

Yes No

X

X

21

X

If the secretary is not a director, please complete the following table:

Name of Secretary Representative

SEBASTIÁN CUENCA MIRANDA


C.1.35 Please specify any mechanisms established by the company to ensure the independence of

the external auditors, financial analysts, investment banks and rating agencies.

Article 32.1 of the Board Regulations establishes that the relations of the Board with the external auditors shall be

channeled through the Audit Committee. In this regard, Article 13.2 of the Board Regulations provides that the Audit

Committee shall have the following duties, inter alia:

"(…)

(d) To refer proposals for the selection, appointment, reappointment and removal of the statutory auditor, taking responsibility

for the selection process in accordance with the provisions of applicable regulations, as well as for the hiring conditions

thereof, to the Board of Directors, and regularly gather information from the external auditor on the auditing plan and execution

thereof, in addition to maintaining its independence in carrying out its duties.

(e) To establish the relevant relationships with the external auditor in order to receive information on all matters which may

threaten their independence, to be examined by the Committee, as well as on any other matters related to the auditing of the

accounts, and, as applicable, on the authorization of services other than those services prohibited under the terms set forth in

applicable regulations on the independence regime, including all communications as provided for by statutory auditing

legislation and standards. In any event, the Committee shall receive an annual statement from the external auditors on their

independence in relation to the company or any of its directly or indirectly related entities. This report shall include detailed

and personalized information on additional services of any nature that were provided together with the applicable fees

received from such entities by either the external auditor or other persons or entities related thereto, in accordance with the

applicable regulations governing statutory auditing.

(…)"

In addition, Article 32.2 of the Board Regulations states that the Board of Directors shall abstain from contracting those audit

firms that are involved in any circumstances that could affect their independence in performing their duties, respecting in all

cases the legally established prohibitions and incompatibilities. This article also provides that the Board of Directors shall

publicly report any global professional fees paid by the Company to the audit firm for non-audit services, which it has already

been reporting in the Notes to the Annual Financial Statements.

On the other hand, the Investor Relations and Capital Markets Department is tasked with maintaining

communications with institutional shareholders and financial analysts that cover the shares of Pharma Mar, making

sure not to provide them with any insider information as regards the rest of the shareholders, in accordance with

Article 30 of the Board of Directors Regulations and with the Company's policy on communication and relationships

with shareholders, institutional investors and voting advisors, as approved by the Board of Directors and published

on the Company's website.

C.1.36 Please specify whether the Company changed its external auditor during the year. If so, please

identify the incoming and outgoing auditor:

Yes No

If there were any disagreements with the outgoing auditor, please provide an explanation:

C.1.37 Please specify whether the audit firm provides any non-audit services to the company and/or

its group and, if so, the fees paid and the corresponding percentage of total fees invoiced to

the company and/or group:

Yes No

X

22

X

X

Company Group Total

Amount for Non-Audit Services (in thousands of euros) 123 18 141

Amount for Non-Audit Services / Total Amount Invoiced by the Audit Firm

(%)

18.64% 2.77% 21.41%

C.1.38 Please specify whether the audit report on the annual financial statements for the preceding

year contains a qualified opinion or reservations. If so, please explain the reasons given by

the chair of the audit committee to explain the content and scope of the aforementioned

qualified opinion or reservations.

Yes No

C.1.39 Please provide details on the number of consecutive years for which the current audit firm has

been auditing the annual financial statements of the company and/or its group. Furthermore,

please specify the number of years audited by the current audit firm as a percentage of the

total number of years that the financial statements have been audited:

Company Group

Number of Consecutive Years 22 22

Number of Years Audited by the Current Audit Firm / Number of Years the Company Has

Been Audited (%)

78.57% 78.57%

C.1.40 Please specify whether there is a procedure whereby directors can contract external advisory

services and, if applicable, provide details:

Yes No

C.1.41 Please specify whether there is a procedure for providing information to directors to allow them

to prepare for meetings of management bodies with sufficient notice. If so, explain the

procedure:

Yes No

The directors' right to information is expressly regulated by Article 20.1 of the Board Regulations, which establishes that the

Directors, as required to perform their duties, shall have ample powers to make inquiries on any matter related to the

Company and, for such purpose, shall have access to any and all documents, registries, records or any other necessary

elements. Information requests shall be made to the Chairman and will be processed by the Secretary of the Board of

Directors, who shall directly provide the Directors with such information or otherwise notify the relevant intermediaries in the

Company and, in general, shall establish all necessary measures to ensure full compliance with the Director's right to

information.

Article 20.2 of the Board Regulations provides that any Director, in the exercise of the specific duties entrusted thereto either

individually or by virtue of its membership on any of the Board Committees, may request that the Chairman hire, at the

Company's expense, legal, accounting, technical, financial, commercial or any other advisers deemed necessary to assist in

the performance of its duties, whenever related to specific problems of particular relevance and complexity that warrant said

advising. The Chairman, according to the circumstances of the particular case, may deny or authorize the proposal by notice

to the Board Secretary, who shall, if authorized, coordinate the hiring of the expert.

The Chairman may also bring the proposal to the Board of Directors, who may refuse to approve financing for the

advisory services on the grounds that they are not necessary for the performance of the duties entrusted, that their

amount is disproportionate to the importance of the issue, or if it considers that such technical assistance could be

adequately provided by Company personnel.

Explanation of procedure

Explanation of procedure

X

23

X

Article 16.2 of the Regulations states that the annual meetings shall be called by letter or e-mail issued by the Secretary at

the demand of the Chairman or the Acting Chairman. The meeting notice shall be made at least five days in advance, except

as provided in Article 3.3 of the Regulations, and shall include the agenda for the meeting, which shall clearly list the agenda

items on which the Board must make a decision or pass a resolution. Thus, and in accordance with regulatory provisions, to

ensure that meetings are properly prepared and with a view to ensuring that the Directors have all necessary information, the

Chairman shall establish an agenda for all Board meetings. This agenda, together with all documents related thereto, is sent

by the Board Secretary, usually by e-mail, at least five days before the date set for the meeting.

The prior and express consent of a majority of the Directors in attendance shall be required, and duly recorded in the

minutes, if the Chairman wishes to submit to the Board, for urgency reasons, the approval of decisions or resolutions not

listed on the agenda.

The annual Board meetings shall discuss the general performance and financial results of the Company and, as the case

may be, of its subsidiaries, as well as those matters referred to in Article 5 of the Regulations, if applicable and, in any case,

shall discuss those items included on the agenda.

The Board of Directors shall receive information in these regular meetings on the most relevant aspects of the business

management since the last meeting of said body was held as well as on all actions in such regard proposed by Senior

Management.

Article 16.3 establishes that special meetings of the Board may be convened by phone and that the deadline and other

requirements referred to in the preceding section shall not apply when, in the opinion of the Chairman or Acting Chairman, the

circumstances so justify.

On the other hand, Article 17.3 of the Regulations states that, except where the Board of Directors has been convened on an

urgent basis, the Directors shall have sufficient prior access to the information required to form an opinion on each of the

agenda items, and the Chairman shall be responsible, with the assistance of the Secretary and, as the case may be, the

Legal Counsel, for preparing said information. The Chairman may invite as many officers to the meeting as he or she deems

appropriate with a view to supplementing the information provided to the Directors on the agenda items.

C.1.42 Please specify whether the company has established any rules that require directors to report

on and, if applicable, resign in any circumstances that may harm the company’s credit and

reputation. If so, provide details:

Yes No

C.1.43 Please specify whether any member of the board of directors has notified the company that he

or she has been tried, or notified that judiciary proceedings have been filed, for any offenses

established in Article 213 of the Spanish Capital Corporations Law.

Yes No

Please explain whether the board of directors has analyzed the case. If so, please provide a

reasoned explanation of the decision made on whether the director should continue in his or

her position, explaining all actions taken or expected to be taken by the board of directors as

of the date of this report.

Article 28.2 of the Board Regulations states that Directors shall inform the Company of any positions that they hold or

activities that they carry out in other companies or entities and, in general, of any other fact or circumstances that could be

relevant to its conduct as a director of the Company and of any transactions that could cause harm to the Company or of any

other activities that could constitute competition for the Company or any of its Group companies.

Furthermore, Article 19.2 of the Board Regulations provides that the Directors shall tender their resignation to the Board

of Directors and formalize said resignation, if deemed appropriate, when they are involved in any circumstance of

incompatibility or prohibition provided by law, the Bylaws or the Regulations.

Article 19.3 establishes that the Appointments and Compensation Committee shall make proposals to the Board of

Directors, for their submission to the General Shareholders Meeting, on the removal of Directors whose behavior could

negatively affect the functioning of the Board or the Company's credit and reputation.

Explanation of rules

X

24

C.1.44 Please give details on any significant agreements entered into by the company that would

enter into force, be amended or concluded in the event of a change in control of the company

as a consequence of a public tender offer, and the effects thereof.

C.1.45 Please identify and detail, on an aggregate basis, the agreements between the company and

its administration and management positions or employees who benefit from indemnities, or

guarantee or golden parachute clauses, upon their resignation or wrongful dismissal, or if the

contractual relationship comes to an end due to a public tender offer or any other type of

transaction.

Number of beneficiaries: 1

Type of Beneficiary: EXECUTIVE CHAIRMAN

Description of Agreement:

As regards the Executive Chairman, the contract for the provision of executive services between the

Company and the Chairman shall remain in force for as long as the Executive Chairman continues to

hold such position on the Board of Directors and to serve as the top executive of the Company, bearing

in mind that the contract may be terminated by mutual agreement of the parties, by unilateral voluntary

resignation of the Executive Chairman, for causes attributable to the Company and due to death, legal

incapacity, total permanent or other significant incapacity of the Executive Chairman, or temporary

incapacity or inability to perform his duties for a period longer than twelve months.

The Executive Chairman shall have the right to receive a severance payment equivalent to 1.5 times the

gross annual Regulated Compensation (defined as the arithmetic mean of the total amount of annual

fixed compensation, annual variable compensation and attendance allowances accrued during each of

the two full fiscal years immediately preceding the contract termination date) if his contract as the top

executive is terminated for any cause attributable to the Company (whether by unilateral voluntary

termination by the Company –e.g. removal or non-reappointment of the director or revocation of

authorities or powers without subsequently and immediately appointing, delegating or granting analogous

authorities or powers in the Company or, in the case of an intragroup merger, in the absorbing company–, or by significant amendment to the duties or conditions for providing services, including the succession

of the Company or a significant change in ownership thereof that has the effect of changing the

composition of its governing bodies or the content and focus of its primary activity, unless the contract is

assigned by the Company to any other Group company).

Please specify whether the governing bodies of the company or its group must be notified of

and/or approve these agreements:

Board of Directors General Meeting

Body Authorizing the Clauses Yes No

Yes

No

Are the clauses reported to the general shareholders meeting? X

C.2 Board Committees

C.2.1 Please provide details on all board committees, their members and the proportion of executive,

shareholder-appointed, independent and other external directors on the committees:

AUDIT COMMITTEE

25

Name Position Category

CARLOS SOLCHAGA CATALÁN CHAIRMAN Independent

ANA PALACIO VALLELERSUNDI MEMBER Independent

ROSP CORUNNA PARTICIPACIONES EMPRESARIALES, S.L. MEMBER Shareholder-Appointed

JEFPO, S.L. MEMBER Other External

JAIME ZURITA SAÉNZ DE NAVARRETE MEMBER Independent

% shareholder-appointed directors 20.00%

% independent directors 60.00%

% other external directors 20.00%

Please explain the duties attributed to this committee, describe the procedures and rules

followed regarding its organization and functioning and summarize the most significant actions

taken during the fiscal year.

In accordance with Art. 13 of the Board Regulations, this Committee has the following duties, inter alia:

(a) To notify the General Shareholders Meeting regarding matters arising within the scope of the Committee's

competencies.

(b) To supervise the effectiveness of the Company's internal controls, internal auditing and risk management systems,

including tax risks, as well as discuss with the statutory auditor any significant weaknesses in the internal control system

detected during the audit.

(c) To supervise the preparation and presentation of all required financial information.

(d) To refer proposals for the selection, appointment, reappointment and removal of the external auditor, as well as on the

hiring conditions thereof, to the Board of Directors, and regularly gather information from the external auditor on the auditing

plan and implementation thereof, in addition to maintaining its independence in carrying out its duties.

(e) To establish the relevant relationships with the external auditor in order to receive information on all matters which may

place their independence at risk, to be examined by the Committee, as well as on any other matters related to the auditing of

the accounts, including all communications as provided for by accounting and auditing legislation and standards. In any event,

the external auditors shall issue an annual statement on their independence in relation to the company or any of its directly or

indirectly related entities, including information on additional services of any nature that were provided together with the

applicable fees received from such entities by either the external auditor or other persons or entities related thereto, as set

forth in applicable legislation on the auditing of accounts.

(f) To issue an annual report, prior to issuance of the audit report, expressing an opinion on the independence of the statutory

auditor. This report shall, in any event, include an assessment of the value of the additional non-auditing services referred to

in the preceding paragraph, accounted for both individually and collectively, in relation to independence requirements or

auditing regulations.

(g) To provide the Board of Directors with advance notice regarding all matters provided for by law, the Bylaws and these

Regulations and in particular, regarding:

1. All financial information that the Company must periodically make public.

2. The creation or acquisition of shares in special purpose vehicles or companies incorporated in foreign countries or

territories that are considered tax havens.

(h) To ensure that the Board of Directors works to present the financial statements to the General Shareholders Meeting

without any restriction or reservation in the audit report.

Furthermore, the Committee shall exercise duties related to the reporting and internal control systems and to the external

auditor, including:

(a) To supervise the preparation process and the integrity of the financial information relating to the Company and, as the

case may be, to the group, reviewing compliance with regulatory requirements, the proper scope of the consolidated Group

and the correct application of accounting principles.

(b) To ensure the independence of the internal auditing unit; propose the selection, appointment, reappointment and removal

of the party responsible for the internal auditing services; propose the budget for such service; approve the direction and plans

for its services to ensure that the activity focuses primarily on relevant risks for the Company; receive regular reports on its

activities and, in any case, a final report for each fiscal year; and verify that Senior Management takes the conclusions and

recommendations of such reports into account.

(c) To establish and monitor a mechanism that allows employees to communicate, confidentially, any potential significant

irregularities, in particular financial and accounting irregularities, observed from within the company.

(d) If the external auditor resigns, to examine the circumstances leading to this resignation.

(e) To ensure that compensation of the external auditor does not compromise quality or independence.

(f) To oversee that the Company reports the change of auditor as a material event to the Spanish Securities Market

Commission (Comisión Nacional del Mercado de Valores - CNMV), which shall be accompanied by a statement on any

potential disagreements with the outgoing auditor and, if any, the content thereof.

(g) To ensure that the external auditor holds an annual meeting with a plenary session of the Board of Directors in order

to inform them of the work performed and the financial position of and risks faced by the Company.

(h) To ensure that the Company and the external auditor respect rules in force on the provision of non-auditing services,

limits on the concentration of the auditor’s business and, in general, any other rules on the independence of the auditors.

(continued in section H.1)

26

Please identify the director on the audit committee whose appointment was made based on

his or her knowledge and experience in the areas of accounting, auditing or both and state the

number of years the chairman of this committee has been in his or her position.

Name of Experienced Director CARLOS SOLCHAGA CATALÁN

No. of Years Chairman has Held Office 2

APPOINTMENTS AND COMPENSATION COMMITTEE


EDUARDO SERRA Y ASOCIADOS, S.L. CHAIRMAN Independent

ANA PALACIO VALLELERSUNDI MEMBER Independent

MONTSERRAT ANDRADE DETRELL MEMBER Shareholder-Appointed

JAIME ZURITA SAÉNZ DE NAVARRETE SECRETARY Independent







In accordance with Art. 14 of the Board Regulations, this Committee has the following duties:

- To assess the skills, knowledge and experience needed on the Board of Directors. For such purpose, the Committee

shall define the functions and skills necessary in the candidates to cover each vacancy and evaluate the time and

dedication required in order that they may properly perform their mandate.

- To establish a representation goal for the least-represented gender on the Board of Directors and develop guidelines

on how to reach such objective.

- To raise all proposals for the appointment of Independent Directors to the Board of Directors for their appointment by co-

optation or by submission to the decision of the General Shareholders Meeting, as well as all proposals for the

reappointment or removal of said Directors by the General Shareholders Meeting.

- To report on all proposals for the appointment of the remaining Directors by co-optation or by submission to the

decision of the General Shareholders Meeting, as well as on all proposals for their reappointment or removal by the

General Shareholders Meeting.

- To report on proposals for the appointment or removal of senior executives as well as to report on or propose the basic

terms of their contracts.

- To assess and coordinate the succession of the Chairman of the Board of Directors and of the Company's top executive

and, as the case may be, develop proposals for the Board of Directors such that said succession may be completed as

smoothly and orderly as possible.

- To propose a policy to the Board of Directors for the compensation of Directors and general managers or other individuals

carrying out senior management duties under the direct supervision of the board, the executive committees or the Managing

Directors, as well as for individual compensation and other contractual terms of the Executive Directors, ensuring that such

terms are complied with.

- To ensure compliance with and periodically review the compensation policy for the Directors and senior executives,

including share compensation systems and their implementation, as well as to ensure that individual compensation is

proportionate to the amounts paid to the other Directors and senior executives of the Company.

- To ensure that any potential conflicts of interest do not threaten the independence of any external advising provided to the

Committee.

- To verify information regarding compensation of Directors and senior executives as provided in various corporate

documents, including the annual Directors' compensation report.

- To report to the Board of Directors in advance regarding proposed resolutions for related-party transactions.

As regards the rules on organization and functioning, Article 14.1 states that it shall be comprised of a minimum of three and a

maximum of four Non-Executive Directors appointed by the Board, at least two of which shall be Independent Directors. This

Article further states that the Board shall be responsible for appointing the Chairman from among the Independent Directors on

the Committee and that Committee meetings may, as the case may be, be attended by the party responsible for implementing

the Company's compensation policy or by any other Company employee, as deemed appropriate by the Committee. The

position of Secretary of the Committee shall be held by one of the Committee members, the Board Secretary, the Vice

Secretary or the Legal Counsel of that body, as determined by the Board of Directors, who shall draft minutes for all

resolutions adopted.

27

X

The Committee shall analyze all suggestions submitted thereto by the Chairman, Committee members, officers or

shareholders of the Company and shall meet whenever the Board or its Chairman requests that a report be issued or a

proposal be adopted and, in any case, whenever convenient for the proper performance of its duties and, in any case, shall

monitor the information on the compensation of the Board of Directors.

(continued in section H.1)

EXECUTIVE COMMITTEE


JOSÉ MARÍA FERNÁNDEZ SOUSA-FARO CHAIRMAN Executive

PEDRO FERNÁNDEZ PUENTES MEMBER Executive

JEFPO, S.L. MEMBER Other External

% executive directors 66.67%







In accordance with Art. 15 of the Board Regulations, it shall focus its activities primarily on:

- Ongoing monitoring and oversight of the daily operation and management of the Company, regularly monitoring

financial management and implementation of the Company's strategic proposals and plans.

- Discussing those matters related to the following topics prior to submitting them to the Board: (i) accounts, management

report and proposed application of earnings for each fiscal year; (ii) budgets and action plans and guidelines for managing

the Company; (iii) oversight of the foundations of the corporate organization in order to ensure its maximum efficiency;

and (iv) tangible or financial investments and divestments that are particularly relevant for the Company.

- In general, providing assistance to the Board in all decisions related to those issues listed in sections a) and b) of Article 5.3

of these Regulations, which refer to the establishment by the Board of general strategies and management guidelines for the

Company.

As regards the rules on organization and functioning, Article 15.1 states that the Executive Committee shall be comprised of

three Directors appointed by the Board of Directors. The Chairman of the Board of Directors shall act as the Committee

Chairman. The position of Committee Secretary shall be performed by one of the Directors on the Committee, the Board

Secretary, the Vice Secretary or the Legal Counsel of said body, as determined by the Board of Directors.

It shall perform the duties delegated by the Board of Directors in relation to the day-to-day management, administration

and representation of the Company in conformity with the principles governing conduct as established in the Bylaws and

in these Regulations in relation to the Board of Directors. Notwithstanding the Executive Committee's decision-making

autonomy in relation to the delegated powers, and its resolutions being valid and effective without any requirement of

ratification by Board, in those cases in which, in the opinion of the Chairman, the circumstances so require, the

resolutions passed by the Executive Committee shall be submitted to the ratification of the Board, following the same

regime as applicable to those matters for which the Board has delegated their analysis to the Committee but reserving

the final decision thereon to the Board, in the latter case which the Executive Committee shall be limited to submitting the

relevant proposal to the Board.

Information will be provided in the Board meetings on the main decisions adopted, as the case may be, in the meeting(s) of

the Executive Committee that were held after the most-recent Board meeting, and all minutes for such meetings shall be

made available to the directors for their evaluation.

Any member of the management team or other Company employee as required for such purpose may attend its meetings

and provide their assistance.

The Executive Committee held seven meetings in 2017, addressing various issues related to the Group's strategy.

Please indicate whether the composition of the delegated committee or executive committee

reflects the participation of the different categories of directors on the board of directors:

Yes No

28

C.2.2 Please complete the following table with information on the number of female directors on the

board committees over the last four fiscal years:

Number of Female Directors

2017 2016 2015 2014

Number % Number % Number % Number %

AUDIT COMMITTEE 1 20.00% 1 20.00% 1 25.00%

APPOINTMENTS AND

COMPENSATION

COMMITTEE

2 50.00% 2 50.00% 2 50.00%

EXECUTIVE COMMITTEE 0 0.00% 0 0.00% 0 0.00%



C.2.5 Please indicate, where applicable, if there are any regulations governing the board committees,

where these regulations may be consulted and any amendments thereto made during the

year. Please also state whether any annual reports on the activities of each committee have

been voluntarily prepared.

The Board committees do not have specific regulations but rather are regulated under Articles 12 to 15 of the Board

Regulations, the amended and restated text of which was approved by the Board of Directors at its meeting on 22 January

2018 and reported to the Spanish Securities Market Commission on 31 January 2018.

An annual report on the activity of the Audit Committee and the Appointments and Compensation Committee has been

issued.


RELATED-PARTY AND INTRAGROUP TRANSACTIONS

D.1 Please explain, as the case may be, the procedures for approving related-party and intragroup

transactions.

Procedures for reporting on the approval of related-party transactions

The Appointments and Compensation Committee is responsible for reporting on, prior to the meeting of the Board of Directors,

proposed resolutions for related-party transactions (Art. 14.2.k of the Board Regulations).

The Board of Directors is in charge of approving, following a report from the Appointments and Compensation Committees, transactions

carried out by the Company or its group companies with significant shareholders, whether individually or collectively with others, including

shareholders represented on the Board of Directors of the Company or of other group companies, or with parties related thereto, in the

terms and subject to the exceptions set forth in applicable law (Art. 5.3.b.(vii) of the Board Regulations).

D.2 Please describe any transactions for significant amounts or relating to significant issues between the

company or group companies and the company's significant shareholders:

D.3 Please describe any transactions for significant amounts or relating to significant issues between the

company or group companies and the company's directors or officers:

D

29

Name of director or

executive Name of

related party

Relation

Nature of Transaction

Amount

(in

thousan

ds of

euros)

ROSP CORUNNA

PARTICIPACIONES

EMPRESARIALES, S.L.

PHARMA MAR, S.A. Commercial Provision of services 15

D.4 Please describe significant transactions carried out by the company with other companies belonging

to the same group, to the extent they are not removed for the purposes of preparing the company's

consolidated financial statements and do not (in terms of their purpose and conditions) form part of the

company’s ordinary business activities.

In any case, any intragroup transaction carried out with organizations established in countries or

territories deemed to be tax havens shall be reported:

D.5 Please state the amount of the transactions carried out with other related parties.

0 (in thousands of €)

D.6 Please describe the mechanisms established to detect, assess and resolve potential conflicts of

interests between the company and/or its group and its directors, officers or significant shareholders.

In the case of Directors, Article 24 of the Board Regulations governs conflicts of interest, establishing that:

1. The Company's Directors, in compliance with their duty of loyalty, shall be required to report to the Board, through the Chairman or

Secretary, any conflict of interest with the Company and its group companies, prior to it arising or as soon as they become aware of its

existence, and shall be required to immediately resign if based on the nature and continuance of the conflict their presence on the Board

goes against the Company's interests.

The Directors shall also adopt those measures necessary to prevent their interests, whether for themselves or on behalf of third parties,

from coming into conflict with corporate interests or with their duties to the Company, in accordance with the provisions of law. In

particular, the duty to avoid conflicts of interest requires that the Directors abstain from engaging in the conduct described in Article 229

of the Spanish Capital Corporations Law, except as waived in accordance with the provisions of Article 230.

A conflict of interest shall be deemed to exist when the interests of the Company and the interests of the Directors directly or

indirectly clash. The Director shall be deemed to have an interest when he or she is directly affected or if any related party thereto is

so affected, as provided in Article 231 of the Capital Corporations Law.

2. The Directors shall also abstain from debating and voting on those matters in which they have an interest, whether directly or

indirectly through a related party, that conflicts with the interests of the Company. This obligation to abstain shall not apply to those

resolutions that affect the Directors in their condition as such, including resolutions for their appointment, reappointment or removal.

Voting by the Directors or, as the case may be, by the Committee in question on these types of resolutions may be made anonymously

if so requested by any of its members.

3. The Directors shall disclose any interest held thereby in the capital of a company engaging in activity identical, analogous or

complementary to that constituting the corporate purpose, as well as any offices held or duties performed in such company, as well as

any activity carried out, for their own benefit or for the benefit of a third party, that is identical, analogous or complementary to that

constituting the Company's corporate purpose. This information shall be included in the justifying report.

Articles 25 and 27 of the Board Regulations may apply to certain conflicts of interest. These articles regulate, respectively, the use of

corporate assets and taking advantage of business opportunities, although they only incidentally address conflict of interest.

Article 25 of said Regulations provides that Directors may not use the assets of the Company or its subsidiaries for private purposes

or for persons related thereto and may not use their position in the Company or its subsidiaries to obtain a financial advantage unless

sufficient consideration is paid. Waiver of this requirement shall require a prior report from the Appointments and Compensation

Committee. If the benefit is attained in their condition as a partner, the principle of equal treatment of shareholders must be followed.

Article 27 states that Directors may not take advantage, whether directly or on behalf of a related party thereto, of any potential

business investments or transactions, or of any other nature, of which they became aware in the performance of their position, using

the information means of the Company or of its investee companies or in such circumstances that could give rise to an assumption that

the action was actually led by the Company. This prohibition shall not govern when the Board has previously offered the business

opportunity to the Company or when authorized by the Board by prior report of the Appointments and Compensation Committee,

whenever the Company has not dismissed said investment or transaction through the influence of the Director.

It is also important to note that Article 29 of the Board Regulations, governing transactions with significant shareholders and

directors, states that:

30

1. Whenever a significant shareholder or Director of the Company wishes to carry out a transaction with the Company, it shall provide

prior and immediate notice to the Board of Directors, through the Chairman, unless the transaction relates to ordinary transactions

that are made under standard conditions for all clients and are immaterial, understood as those for which information is not required to

express a true and fair view of the Company's equity, financial position and profits.

2. The Company may authorize performance by any Director or any related party thereto of a certain transaction with the Company. The

authorization shall necessarily be granted by the General Shareholders Meeting when it relates to a transaction whose value exceeds ten

percent of corporate assets. In all other cases, the authorization may also be granted by the Board of Directors, following a report from

the Appointments and Compensation Committee, provided that independence of the members granting the authorization is guaranteed

as regards the excepted Director or executive. In addition, it shall also be required to show that the transaction authorized will be

harmless to the company's equity or, as the case may be, that it is being carried out under arm's length conditions and through a

transparent process.

D.7 Is there more than one Group company listed in Spain?

Yes No

Please identify any subsidiaries that are listed on a Spanish Stock Exchange:

Listed Subsidiary

Please identify whether the respective areas of activity and potential business relationships

among them, as well as those of the listed subsidiary with other group companies, have been

made publicly available.

Please identify the mechanisms developed to resolve potential conflicts of interest between the

listed subsidiary and the other group companies:

RISK MANAGEMENT AND CONTROL SYSTEMS

E.1 Please explain the scope of the company's Risk Management and Control System, including as

regards tax risks.

As a result of the wide variety of activity sectors in which the Pharma Mar Group operates and the intense activity and resources applied

to R&D projects, the most appropriate risk management system for this type of structure and activity is a decentralized system for the

different business units, developed primarily on a project-by-project basis. The inherent risks in each project are identified and assessed

by the different business units, who develop actions to respond to and mitigate said risks, as necessary.

Nevertheless, with a view to monitoring certain common risks across the different Group companies, a Group Policy has been

established that applies to all Group companies and which addresses, inter alia, restrictions on and monitoring of powers of attorney

and the contracting of certain financial transactions or purchases and investments. The Audit Committee, with the assistance of the

Group's Internal Audit Department, is responsible for monitoring compliance with these specific policies.

E.2 Please identify the bodies of the company that are responsible for developing and implementing the

Risk Management System, including as regards tax risks.

In general, the management bodies of each of the Group companies are aware of the risks faced by their organizations and understand

the control environment. Officers in the different areas are in charge of implementing the specific controls for such risks.

The Board of Directors of the parent company of the Group, through its Audit Committee, has the duty to monitor the effectiveness of the

Company's internal controls, internal auditing and risk management systems, as well as for discussing with the statutory auditors any

significant weaknesses in the internal control system identified during the audit, all without compromising their independence. For such

purpose, as the case may be, recommendations or proposals may be submitted to the governing body, including the periods established

for compliance therewith (Art. 13.2.b of the Board Regulations).

Please define any potential business relations between the parent company and

the listed subsidiary, as well as between the latter and any other group company.

Mechanisms for resolving potential conflicts of interest

X

E

31

In order to carry out this duty, the officers of the different business units shall report to the Committee at least once per year on the

different risks faced by their respective business units (operating, market, financial, etc.), on processes for monitoring such risks and on

mitigating actions.

Development projects for new products are managed by the project management teams or "Project Teams," who are also responsible

for identifying the risks that may arise in relation to each project and sub-project. These "Project Teams" are interdisciplinary and

assess potential risks from the perspective of various disciplines (patents, production, clinical, regulatory, etc.) and establish tolerance

levels which, as regards projects in the clinical development stages, are regulated by the competent authorities, leaving little

discretionary margin. The management system through "Project Teams" was adopted by the Management Committee of the

Oncology Business Unit.

As regards research projects, certain institutional criteria have been established: patentability, viability of production, market criteria or

therapeutic window and novel mechanisms of action; if the research project does not comply with any of these institutional criteria,

there are a series of internal mechanisms that result in stoppage of the project by the Research Management. The decision of whether

to promote a project from the research stage to the development stage is discussed among the Chairman, the Managing Director of

the Oncology Business Unit and R&D Management.

On the other hand, all of the boards of directors of the different business units have various directors that also serve as directors of

the Group's parent company; these directors disseminate the principles of conduct established in the board of directors of the

Group's parent company to these boards of directors and raise relevant questions to the board of the parent company that may arise

within the boards of directors of which they form part for the different business units.

E.3 Please identify the primary risks, including tax risks, which may affect attainment of the business

objectives.

See section H.1

E.4 Please identify whether the company has established a risk tolerance level, including as regards tax risks.

The sectors in which the activity of the different business units of the Pharma Mar Group is carried out (biopharmaceutical and consumer

chemicals) are highly regulated sectors. In these sectors, the safety and reliability of operations are monitored by official bodies such as

the Spanish Agency of Medications and Sanitary Products, the European Medicines Agency (EMA), and the U.S. Food and Drug

Administration (FDA). Consequently, risk appetite has very low tolerance thresholds, in particular as regards operating risks and risks

related to physical safety of employees, compliance and separation of duties. The Group's risk tolerance is in line with and complies with

the standards and regulations applicable thereto. Management decisions made by the Company's senior management take into account

this tolerance level as established at the corporate level.

E.5 Please identify the risks, including tax risks, that arose during the fiscal year.

In November 2016, a product marketed by a large multinational was approved for treatment of soft tissue sarcoma. This product is

designed for use with doxorubicin as the first-line treatment for sarcoma. This new product is used as a maintenance drug after six cycles

of doxorubicin, thus delaying relapse of the tumor in patients and therefore postponing potential use of Yondelis® by a few months.

Marketing of this product in some European Union Member States began halfway through 2017, but has not had a significant impact.

In November 2017, a new competitor to Yondelis® was approved for treatment of ovarian cancer, which when administered after

platinum in platinum-sensitive ovarian cancer, directly competes with Pharma Mar and delays the possibility of administering Yondelis®

to a third or further line of treatment. This product is currently reimbursed only in Germany, where it also has not had a significant

material impact.

In 2017, the price of Yondelis® was also decreased in some European Union Member States. This price erosion has impacted turnover

by approximately €1.85 million.

Finally, the exclusivity period granted by the EMA to Yondelis® ended in September 2017; however, this has not had any impact, since

the Company still holds the patent for Yondelis® through 2022.

In September 2016, the Company submitted a request to the European Medicines Agency (EMA) for marketing authorization for one of

its compounds Aplidin® (plitidepsin), for the treatment of multiple myeloma. In December 2017, the Company received a negative

opinion from the CHMP (Committee for Medical Products for Human Use) denying approval of marketing of this compound in Europe.

The primary objective of the trial on which this request was based (i.e. the ADMYRE trial) was met, and therefore, the Company has

requested review of its application for approval. The resolution of this request may be received during the second quarter of this year.

The Company estimated direct costs incurred in the development of a multiple myeloma trial, as well as indirect costs attributable

thereto, recording an impairment value for all such costs of €97,942 thousand as at 31 December 2017.

The results of the CORAIL study –carried out by Pharma Mar in relation to the compound Zepsyre® (lurbinectedin), for treatment of

resistant ovarian cancer– were released on 18 January. Although the compound was active –at least as active as the other two

control group compounds considered standard treatment at this time–, the primary trial objective (i.e. progression-free survival (SLP))

was not met. As of 31 December 2017, the amount recorded as an asset of PharmaMar for the compound Zepsyre® totaled €93,672

thousand. Of this figure €40,905 thousand pertains to the CORAIL study, including direct and indirect costs attributable thereto. This

32

amount will be removed from the capitalized development expenses account due to the results obtained in the CORAIL study.

As regards the consumer chemicals sector, the risks identified in previous years continue to decrease: risk of default and non-

payment and customer credit risk. The most significant uncontrollable risk in this sector is the potential effect of adverse weather

conditions, including the appearance of insects and/or long periods of rain that could delay exterior wood restoration works. The

transfer of price increases in raw materials (in particular, pyrethrum extract) to the clients and the implementation of an appropriate

advance stocking policy have helped minimize the potential effects of changes in the EUR/USD exchange rate. The market trend

whereby more and more weight is being given to large DIY superstores has resulted, in part, in a high concentration of sales to a

small number of customers.

E.6 Please explain the plans for responding to and monitoring the main risks faced by the company,

including tax risks.

See section H.1

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IN RELATION TO THE

FINANCIAL REPORTING PROCESS (SCIIF)

Describe the mechanisms included in your company's internal control and risk management systems

in relation to the financial reporting process (SCIIF - Sistema de Control Interno de la Información

Financiera).

F.1 Company's control environment

Please provide information on the primary characteristics of at least:

F.1.1. What bodies and/or duties are responsible for: (i) the existence and maintenance of a proper

and effective SCIIF; (ii) its implementation; and (iii) monitoring of the SCIIF.

The Company's Board of Directors has the duty to establish the internal control and risk management systems, including as

regards tax risks, and to identify the primary risks faced by the Company, in particular those risks arising from derivative

transactions, as well as to implement and monitor adequate internal control and reporting systems, in accordance with Article

5.3.b).(vi) of the Board Regulations.

This responsibility is exercised through the Audit Committee, which is the body responsible for monitoring the effectiveness of

the Company's internal controls, internal auditing and risk management systems, including as regards tax risks, as well as for

discussing with the statutory auditor any significant weaknesses in the internal control system identified during the audit, all

without compromising independence. For such purpose, as the case may be, recommendations or proposals may be

submitted to the governing body, including the periods established for compliance therewith, in accordance with Art. 13.2.b) of

the Board Regulations.

The Company's Financial Managers are responsible for the design, implementation and operation of the SCIIF, as well as for

identifying and assessing risk on an annual basis and for determining the controls to be implemented, in accordance with the

risk management procedures in relation to financial reporting.

The Audit Committee and the Financial Managers assist the Internal Audit Department, which is in charge of drafting and

implementing an annual plan to assess the efficiency of the SCIIF. Likewise, it shall regularly report to the Audit Committee

on weaknesses identified and the implementation of corrective measures, as frequently as required. These duties are also

established by virtue of the risk management procedures in relation to financial reporting.

F.1.2. If any, please identify the following elements, in particular as regards the process for drawing

up financial information:

• Departments and/or mechanisms responsible for: (i) designing and revising the organizational structure; (ii)

clearly defining the lines of responsibility and authority, ensuring proper distribution of tasks and duties; and (iii)

ensuring that there are sufficient procedures in place for its proper dissemination within the company.

F

33

As regards the organizational structure, the Board of Directors is entrusted with the duty to define the structure of the

group of companies for which the Company is the parent company (Art. 5.3.a).(vi) of the Board Regulations).

The Board shall adopt all measures necessary to ensure that company management is under the effective supervision of

the Board (Article 6.3.b of the Board Regulations). Article 22 of the Regulations establishes that, in addition, the Directors

shall have the duty to assist the Board with its duty to foster and monitor the day-to-day management of the Company and,

to the extent legally permitted, of the investee companies.

In this regard, the General Managers of the investee companies shall, at least once a year and whenever so required

due to special circumstances, report to the Board of Directors on their day-to-day operations, and the Board shall aim to

ensure that no individual or small group of individuals holds decision making power not subject to counterweights and

controls (Art. 6.3.c) of the Board Regulations); in this regard, there is an internal policy establishing restrictions on

powers of attorney.

The Executive Committee has the duty to monitor the bases of the corporate organization with a view to ensuring the

maximum efficiency thereof (Art. 15.2.b).(iii) of the Board Regulations), whereas the General Managers are in charge of

distributing tasks and duties among members of their respective organizations. As regards the process for drawing up

financial information, applicable procedures are established by corporate Financial Managers and distributed to the different

affected areas through their managers.

• Code of conduct, authorizing body, degree of publication and reporting, principles and values included

(identifying whether there is any specific mention to the registration of transactions and drafting of financial

information), body tasked with assessing non-compliance and proposing corrective actions and sanctions.

The Company's Board of Directors unanimously resolved on the approval of the Pharma Mar Group's Code of Conduct at

its meeting held on 22 December 2015, which entered into effect on 1 February 2016. The Code of Conduct has been sent

to all employees of the Pharma Mar Group and is aimed at, in accordance with Article 1 thereof, formalizing the principles

and values that should guide the conduct of everyone forming part of the companies of the Pharma Mar Group, both

internally and with clients, partners, suppliers and in general, with all public and private individuals and entities with which

they liaise in the performance of their professional activity.

Article 3.15 of the Code states that the management bodies of the Pharma Mar Group and its companies undertake to

ensure regular monitoring of the effectiveness of the internal control system in relation to financial reporting to the markets.

Any doubts that may arise in the interpretation of the Code of Conduct shall be discussed with the hierarchical superior or,

as the case may be, with the Group's Conduct Committee, which shall be in charge of analyzing non-compliance and

proposing corrective actions.

• Complaints channel that enables the reporting of financial and accounting irregularities to the audit committee, as

well as for reporting potential breaches of the code of conduct and other irregular activities within the

organization. Please indicate whether this channel is confidential.

Everyone covered by the Code of Conduct –i.e. members of the board of directors, Senior Management and, in

general, without exception and regardless of his or her position, responsibility or workplace, all employees and officers

of companies that form part of the Pharma Mar Group–, may report any potential breaches thereof through the

Complaints Channel established for such purpose.

In accordance with the Regulations governing the Complaints Channel, the Conduct Committee, the composition of

which was resolved on by the Board of Directors on 26 January 2016, ensures that all complaints received through the

Complaints Channel are addressed and managed properly and fully and are analyzed on an unbiased and confidential

basis. Furthermore, the Conduct Committee guarantees the confidentiality of the identity of the reporting party or parties,

as well as of the party or parties being reported, notifying only those people as strictly necessary for the investigation and

resolution process.

• Training programs and regular ongoing training programs for staff involved in preparing and reviewing financial

information, as well as on assessment of the SCIIF, which shall cover, at least, accounting, auditing, internal

control and risk management rules.

Staff involved in the preparation and review of financial information regularly attend external continuing education programs

on applicable regulations. In 2017, the total number of hours spent on training in this area was 337.5 hours.

F.2 Assessment of financial reporting risk Report on

at least the following:

34

F.2.1. What are the main characteristics of the process for identifying risks, including the risk of error

or fraud, in relation to:

• Whether the process exists and is documented.

The Company has a process for identifying financial risks that results in the development of a risk map for the Group's

financial information. Both the process for identifying financial risks as well as the resulting map are duly documented.

• Whether the process covers all financial reporting objectives (existence and occurrence; completeness; valuation;

presentation; allocation and comparability; and rights and obligations) and whether it is updated, and with what

frequency.

The process analyzes the five objectives for reliable financial reporting: (i) existence and occurrence; (ii) completeness, (iii) valuation, (iv) allocation, classification and comparability, and (v) rights and obligations. Those risks that could result in material misstatements in the financial information are identified and assessed through this process. For such purpose, both quantitative criteria based on materiality and qualitative criteria based on risk factors are used. Based on the results obtained, the key processes associated with those accounts showing significant and/or specific risks are identified. The results of this process form the basis for the procedures for documenting and assessing the SCIIF. The risks associated with fulfilling the financial reporting objectives are annually identified and assessed as the basis for establishing the controls to be implemented.

• Whether the company has a process for identifying the perimeter of consolidation, taking into account, inter alia,

the potential existence of complex corporate structures, instrumental entities or special purpose vehicles.

The Company's internal regulations establish a process for identifying the perimeter of consolidation to monitor any

potential changes in the perimeter of consolidation. In this regard, the Audit Committee is responsible for supervising the

drafting process and integrity of financial reporting related to the Company and, as the case may be, to the Group, ensuring

compliance with regulatory requirements, proper identification of the perimeter of consolidation and proper application of

accounting criteria (Article 13.3a) of the Board Regulations).

The Board of Directors is responsible for approving (i) the creation or acquisition of shares in special purpose vehicles

or organizations resident in a country or territory that is classified as a tax haven and any other transaction or

operation of a similar nature which, based on its complexity, could compromise the transparency of the Company or its

group; and (ii) investments, divestments or transactions of any kind that, due to their high amount or specific

characteristics, are considered strategic or that pose particular tax risks, unless approval thereof is reserved to the

General Shareholders Meeting (Article 5.3.b of the Board Regulations).

Furthermore, the Company's Internal Auditor is required to report to the Audit Committee on a quarterly basis, prior to

assessment by the latter of the regular financial information required to be submitted to the approval of the Company's

Board with a view to its referral to the markets of any financial investment or divestment made in subsidiaries or other

companies that would require adjustment to the consolidation perimeter or that would trigger the consolidation

obligation. For such purpose the Internal Auditor shall collect the necessary information in such regard from the various

Group companies.

• Whether the process considers the effects of other types of risks (operating, technological, financial, legal,

reputation, environmental, etc.) to the extent they affect the financial statements.

The risk management procedures for financial reporting form part of the Pharma Mar Group's comprehensive risk

management system, exclusively covering those risks that threaten the financial reporting objectives (existence and

occurrence; completeness; valuation; allocation, classification and comparability; and rights and obligations). The

procedures are applicable to all financial reporting risks that affect or may affect the Pharma Mar Group in any of its

entities or areas or that arise in its environment or activities. Therefore, the process considers the effects of other types of

risks covered by the comprehensive risk system of the Pharma Mar Group (operating, technological, financial, legal,

reputation, environmental, etc.), to the extent they affect the financial statements.

• Which governing body of the company oversees the process.

35

The governing body that oversees the risk identification process is the Audit Committee, in accordance with the

provisions of the Risk Management System for Financial Reporting. The Internal Audit Department, Financial Managers

and external auditors, as the case may be, assist the Audit Committee in such regard.

F.3 Control Activities

Please provide information on the primary characteristics of at least, if any:

F.3.1. Processes for reviewing and authorizing financial reporting and the establishment of the SCIIF,

to be published in securities markets, identifying the responsible parties, as well any

processes for the descriptive documentation of operation flows and controls (including as

regards fraud risk) for the different types of transactions that could materially affect the

financial statements, including the procedures for closing the accounts and specifically

reviewing the relevant opinions, estimates, valuations and projections.

The company has an internal financial reporting control model based on the COSO framework, which provides reasonable

certainty of compliance with the objectives of said model: effectiveness and efficiency of transactions, safeguarding of

assets, reliability of financial reports and compliance with applicable laws and regulations.

Prior to identifying the financial risks and developing the pertinent risk map, critical activities were identified (totaling 61),

enabling identification of the key processes to be documented (totaling 40). These 40 processes are duly described and

documented, including flowcharts and a description of the activity. The significant risks identified at each stage of the

process are assigned an applicable key control, which is also described in the processes. A total of 301 controls have been

identified.

The financial managers are responsible for identifying and documenting the aforementioned processes and the

corresponding risks that could affect financial information, as well as for assessing their potential impact. The financial

managers are also responsible for implementing actions aimed at mitigating the identified risks.

There is a procedure for closing the accounts. The specific review of material opinions, estimates, valuations and

projections follow their own process. The respective business units make estimates, valuations or projections in the

areas for which they are authorized; the reasonableness of these calculations is evaluated by the corporate Financial

Managers, with the support of, as the case may be, the advice provided by the different General Managers.

F.3.2. Internal control policies and procedures for reporting systems (including but not limited to for

access security, control of changes, operation thereof, operational continuity and separation of

duties) that support the relevant processes of the company as regards the development and

publication of financial information.

As regards reporting systems that support the relevant financial reporting processes, the responsibilities are delegated to the

different business units. The most significant business unit has a security policy that includes IT controls, controls on the

access of programs and data, controls on the development and management of change, and controls on the operation and

implementation of reporting systems.

F.3.3. Internal control policies and procedures aimed at monitoring the management of activities sub-

contracted to third parties, as well as of the assessment, calculation or valuation activities

outsourced to independent experts, which could have a material effect on the financial

statements.

The Company has not sub-contracted any activities which could be relevant to the issuing of the financial statements. When

the services of an independent expert are used to, for example, make valuations, the professional technical capacity thereof

is ensured, and the Group has qualified staff that can verify the reasonableness of the conclusions made in the reports

issued.

F.4 Reporting and communication

Please provide information on the primary characteristics of at least, if any:

36

F.4.1. A specific department responsible for defining and updating the accounting policies (accounting

policies area or department); resolving doubts or conflicts arising from the interpretation

thereof; maintaining close communications with the parties responsible for the operations of

the organization; maintaining an up-to-date accounting policies manual, which shall be

communicated to the different units through which the company operates.

The corporate Financial Managers are primarily responsible for the application of the accounting policies. As regards

International Financial Reporting Standards, the Consolidation Unit reports to the heads of the accounting areas of the

Group regarding any updates that could affect such areas, working with them to analyze one-off operations and

transactions and resolve any doubts that may arise in any other Group company regarding application of these standards.

The internal auditor updates the different heads in charge of drafting the financial statements as regards regulatory

amendments and also determines the effects of applying new regulations. In particularly complex transactions, the

corporate Financial Managers request the opinion of external auditors regarding the analysis completed by the Group.

The Group's Accounting Policies are set forth in a document titled "Accounting Manual of the Pharma Mar Group,"

drafted based on the General Spanish Accounting Plan Law, as nearly all of the Group companies are located in Spain.

This document is regularly updated and has been distributed to the financial managers of the different Group companies.

F.4.2. Mechanisms for capturing and preparing financial information, with standardized formats, which

apply to and are used by all units of the company or its group and that support the main

financial statements and notes thereto, as well as the information on the SCIIF.

The Company has internally developed IT tools for use in consolidating and drafting the annual financial statements. These

applications have a unified format and are distributed to the Group companies, who then incorporate their individual financial

statements into the application and return them completed to the Consolidation Unit where the consolidation process is

completed. In the event of companies that have their own subsidiaries, such companies shall be responsible for adding their

subsidiaries before sending the financial information to the Consolidation Unit. The SCIIF is supported by a single, unified

system that includes a reporting tool used to obtain the necessary information to reach conclusions regarding the functionality

of the SCIIF.

F.5 Monitoring functioning of the system

Please provide information on the primary characteristics of at least:

F.5.1. Monitoring activities carried out by the audit committee in relation to the SCIIF as well as

whether the company has an internal audit department charged with the duty of supporting the

committee in its monitoring activities of the internal control system, including the SCIIF. Please

also include information on the scope of the assessment of the SCIIF completed during the

fiscal year, as well as on the procedures followed by the party responsible for the assessment

to report his or her results, whether the company has an action plan detailing the potential

corrective measures, and whether its impact on financial information has been considered.

The Company has an internal audit department that is tasked with, inter alia, supporting the Audit Committee in the

performance its duties, which includes the duty to monitor the functioning of Pharma Mar's control environment. These duties

are performed in compliance with the Audit Department Charter approved by the Board of Directors of Zeltia, S.A. on 28

November 2011. The aforesaid Charter was assumed by Pharma Mar, S.A. as a result of the takeover merger of Zeltia, S.A.

(absorbed company) by Pharma Mar, S.A. (absorbing company), effective as of 30 October 2015.

In relation to the SCIIF, the internal audit department is responsible for overseeing the reliability and integrity of the financial

information, monitoring and assessing the efficiency of the control and management of financial risks, publishing proposals

for improvement and monitoring their implementation, unifying compliance with accounting policies, standards and

procedures with effects on each of the processes analyzed and coordinating with financial managers to ensure

documentation related to the SCIIF is up to date. The internal auditor issues an annual report evaluating compliance with the

SCIIF and making proposals for improvement to the SCIIF, which is then sent to the Audit Committee for review. The internal

auditor designs and implements a plan for assessing the efficiency of the controls. Identified weaknesses in the controls are

notified to the Audit Committee.

37

F.5.2. Whether the company has a discussion procedure through which the statutory auditor (in

accordance with the provisions of the Spanish Auditing Technical Standards - NTA), the

internal audit department and other experts can communicate with senior management, the

audit committee or directors of the company regarding significant weaknesses in internal

controls identified during the processes for reviewing the annual financial statements or during

other processes entrusted thereto. Please also provide information on whether an action plan

exists to correct or mitigate the identified weaknesses.

The external auditor met with the Audit Committee twice during fiscal year 2017. The audit work completed in relation to

the individual and consolidated Financial Statements for fiscal year ended 31 December 2016 was presented at a

meeting on 23 February 2017, and the external auditor presented the Audit Plan for fiscal year 2017 at a meeting on 22

November 2017.

The corporate Financial Managers attend the meetings whenever so required.

The internal auditor, by delegation of the Audit Committee, monitors the proper operation of the SCIIF and assesses its design

and effectiveness. The assessment plan for the SCIIF for the upcoming year shall be presented to the Audit Committee on an

annual basis, which shall address risks identified by the financial managers of the Group companies. This Committee shall be

responsible for approving this plan. The Audit Committee shall be regularly notified of any potential weaknesses identified

during the work carried out by the audit department. In this regard, the internal auditor attended the meeting of the Audit

Committee on 26 July 2017, in which it presented on the implementation of the Audit Plan during the first half of 2017. This

Plan was approved by the Committee itself at the end of 2016. Details on the processes analyzed were provided at this

meeting and, in the case of weaknesses identified in the controls by the internal auditor, the recommendations to be

implemented by the Group companies in order to mitigate such weaknesses were reported to the Audit Committee.

Supplementary information was also sent to the members of said Committee via e-mail. The Internal Audit Plan for 2018 was

presented to the Committee and approved at the same meeting held on 22 November 2017.

The monitoring process is continually carried out, which provides reasonable security that the financial information provided

at the interim closing dates is reliable. Furthermore, the Audit Committee may seek the opinion of external auditors or, in

specific cases, seek support from independent experts as regards their monitoring tasks, on the items of the SCIIF that it

deems appropriate.

F.6 Other relevant information

N/A

F.7 External audit report

Please report on:

F.7.1. Whether the information on the SCIIF released to the markets was submitted to a review by the

external auditor, in which case the company should attach the relevant report as an annex

hereto. If not, please provide the reasons.

In fiscal year 2017, SCIIF information reported to the markets was not submitted to a review by the external auditor.

COMPLIANCE WITH CORPORATE GOVERNANCE RECOMMENDATIONS

Please specify the company’s level of compliance with recommendations from the Unified Corporate

Governance Code.

If any recommendation was not followed, or was only partially followed, please include a detailed

explanation of the reasons so that shareholders, investors and the market in general have enough

information to evaluate the company's conduct. General explanations will not be accepted.

G

38

1. That the Bylaws of listed companies should not limit the maximum number of votes that may be cast by

any single shareholder and should not contain other restrictions that hinder the takeover of control of

the company through the acquisition of shares on the market.

Complies Explain

Article 25.3 of the Bylaws provides that "no shareholder may cast a number of votes exceeding 25% of total voting capital from time to

time, even when the number of shares held thereby is greater than the aforesaid capital percentage." This limit shall not affect the

votes applicable to the shares represented by a shareholder by proxy in the terms provided in Article 19 of these Bylaws,

notwithstanding the individual application to each shareholder so represented of the same 25% limit for the votes related to the shares

held thereby.

The limit established in this section shall also apply to the number of votes that, at the most, two or more corporate shareholders

belonging to the same group of companies may cast, whether jointly or separately. This limit shall likewise apply to the number of votes

that, at the most, a natural person shareholder and the company or companies, also shareholder(s), which are controlled by the natural

person, may cast, whether jointly or separately.

For the purposes of the previous paragraph, a group of companies shall be defined as provided in Article 42 of the Commercial Code, and

a natural person shall be deemed to control one or several entities when, in the relations between the aforementioned person and the

reference company or companies, one of the control circumstances referred to in said article occurs.

Likewise, and for the purposes of this Article, the relationship of any natural person or corporate shareholder with interposed parties,

trustees or equivalent entities that are in turn shareholders of the company, as well as with funds, investment institutions or similar

entities that are also shareholders of the company, shall be considered control for the purposes of Article 42 of the Commercial Code,

when the voting rights of the shares held by these persons or entities are directly or indirectly exercised by the shareholder in question.

The limit established in this section shall likewise apply to the number of votes that may be cast jointly by shareholder groups

acting collectively.

In the days leading up to the General Meeting, in first call, the Chairman of the Board of Directors may require that any shareholder

inform the Company through its Chairman, within 48 hours, of the shares held directly thereby and of the shares owned by third parties

directly or indirectly controlled by the shareholder in question, as well as of any information on any pacts or agreements, express or

implied, relating to the right to vote that could give rise to collective action with other shareholders. The Chairman may comment as he

or she deems appropriate at the General Meeting, at the time the Meeting is assembled, in order to ensure compliance with these

Bylaws in relation to the exercise of voting rights by shareholders.

Those shares that belong to one holder, to a group of entities or to a natural or legal person, and the companies controlled by said

natural or legal person, as well as all individuals or entities acting collectively with the aforementioned, shall be fully accounted for

among the shares attending the Shareholders Meeting to obtain the necessary quorum in terms of capital required to hold the meeting,

but at the time of voting, the limit on the number of votes, established at 25% by virtue of this article, shall apply.

The limit established in this section 3 shall cover any material subject to a decision of the General Shareholders Meeting, including the

appointment of directors by the proportional system, but excluding amendment of this article, which shall in any case require the

approval of a qualified majority of 75% of the capital present in person or by proxy, both in first and second call. The limit established in

this section 3 shall be null and void when, following a public tender offer, the offeror has reached a percentage equal to or greater than

70% of the voting capital, unless said offeror was not subject to equivalent neutralization measures, or if such measures were not

adopted. The removal of the aforesaid limits shall be effective as of the date on which the settlement results of the offer are published in

the Quotation Bulletin of the Madrid Stock Exchange."

This limit provided for in the Bylaws is aimed at protecting the rights of the many minority shareholders that have a limited ability to act

and response capacity before any potential shareholder with a participation that, although not a majority holding and without reaching

takeover bid thresholds, wishes to exercise its influence and whose interests may not be completely in line with the corporate interests. It

should be noted that this limit provided for in the Bylaws was already in force in 2000 in Zeltia, S.A., as the former parent company of the

Group, listed on the Stock Exchange Continuous Market, and which was absorbed by Pharma Mar, S.A. in 2015, at which time the latter

became a listed company. In any case, Article 25 of the current Bylaws in force establishes the circumstances under which said voting

limit may be removed, including but not limited to in those cases in which the Company is the subject of a public tender offer that attracts

sufficient social consensus. By virtue of the above, the limit on the maximum number of votes that may be issued by any single

shareholder cannot be considered to constitute a barrier to a public tender offer.

2. That when the parent company and a subsidiary are listed on the stock exchange both should publicly

and specifically define:

a) The respective areas of activity and potential business relationships between them, as well as

those of the listed subsidiary with other group companies.

X

39

X

X

X

X

b) The mechanisms in place to resolve any conflicts of interest that may arise.

Complies Partially Complies Explain Not Applicable

3. That during the annual general shareholders meeting, as a supplement to the publication in writing of

the annual corporate governance report, the chairman of the board of directors should verbally report

to the shareholders, in sufficient detail, regarding the most relevant aspects of the company's

corporate governance and, in particular:

a) On the changes occurring since the previous annual general shareholders meeting.

b) On the specific reasons for which the company is not in compliance with any of the

recommendations of the Corporate Governance Code and, if any, the alternative rules applied in

this regard.

Complies Partially Complies Explain

4. That the company should define and promote a policy on communication and relationships with

shareholders, institutional investors and voting advisors that is fully compliant with regulations against

market abuse and that provides similar treatment to shareholders in identical circumstances.

And that the company should make said policy public on its website, including information on the

manner in which it is implemented and identifying the partners or responsible parties for its

implementation.


5. That the board of directors should not make proposals to the general shareholders meeting for the

delegation of powers to issue shares or convertible securities without preemptive rights, for an amount

greater than 20% of the capital at the time of the delegation.

And that when the board of directors approves any issue of shares or convertible securities without

preemptive rights, the company should immediately publish on its website those reports addressing

the lack of preemptive rights as required by applicable mercantile legislation.


6. That the listed companies that draft the reports referred to herein below, whether on a mandatory or

voluntary basis, should publish them on their website sufficiently in advance of the annual general

shareholders meeting, although dissemination is not mandatory:

a) Report on the independence of the auditor.

b) Reports on the functioning of the audit committee and appointments and compensation committee.

c) Report on the audit committee in relation to related-party transactions.

d) Report on the corporate social responsibility policy.


Prior to the Annual General Shareholders Meeting held on 29 June 2017, the Company published a report on independence of the

auditor, a report on the functioning of the Audit Committee, and a corporate social responsibility report, at which time the Company did not

consider necessary the release of a report on the functioning of the Appointments and Compensation Committee or of said Committee's

report on related-party transactions, as such reports may potentially contain confidential information and, therefore, publication thereof

could harm the legitimate interests of third parties (e.g. employees, providers), also taking into account that, in the case of the related-

party transaction reports, such reports contain the economic conditions of the offers made by third parties in their proposals in competition

with those of the related party.

X

40

X

X

X

X

7. That the company should hold a live broadcast of the general shareholders meetings on its website.

Complies Explain

8. That the audit committee should ensure that the board of directors submits the financial statements to

the general shareholders meeting without any qualifications or reservations in the audit report and, in

the exceptional circumstance that it fails to do so, the chairman of the audit committee and the

auditors should clearly explain the content and scope of the qualifications or reservations to the

shareholders.


9. That the company should publish on its website, on a permanent basis, the requirements and

procedures to be followed in order to accredit ownership of shares, the right to attend the general

shareholders meeting and exercise or delegation of the right to vote.

And that said requirements and procedures shall encourage attendance and the exercise of the

shareholders' rights, and which shall be applied on a non-discriminatory basis.


10. That when any authorized shareholder has exercised, prior to the meeting of the general shareholders

meeting, the right to add additional agenda items or present new proposed resolutions, the company

should:

a) Immediately publicize the additional agenda items and proposed resolutions.

b) Make the form of attendance, proxy and voting card public, incorporating the changes required in

order to ensure that voting on the new agenda items and alternative proposed resolutions is carried

out under the same terms as the proposals made by the board of directors.

c) Submit all items or alternative proposals to a vote and apply the same voting rules as established

for the board of directors including, in particular, as regards the presumptions and inferences on the

direction of the vote.

d) Prior to the general shareholders meeting, notify the breakdown of the vote on said additional items

or proposed resolutions.


Article 24.2 of the Bylaws provides that "unless the Presiding Panel, at the proposal of the Chairman, has established a different system

for the voting in question, votes in favor of the proposed resolutions shall be understood as the votes of all shareholders attending, in

person or by proxy, that have not expressly abstained, voted in blank or voted against the resolution, and approval shall be accredited by

recording the votes against, in blank or abstentions. Nevertheless, as regards resolutions not proposed by the Board of Directors

(defined as proposed resolutions deriving from the exercise of the right provided for in Article 519 of the Capital Corporations Law), votes

of all shareholders attending, in person or by proxy, except for those shareholders that expressly abstain, vote for or cast a blank vote,

shall be considered votes against the proposal submitted to a vote." Article 14.4 of the General Meeting Regulations contains a provision

in this same regard.

These types of provisions are included for practical and operational reasons. For example, the use of mechanisms for granting a proxy or

for distance voting and the preparation of the required documentation for such purpose (voting cards, proxy cards, etc.) is facilitated if a

consensus on the direction of the vote exists, and following this recommendation would hinder and limit the use of these mechanisms, as

it is presumed that a considerable portion of the shareholders employing these methods for voting or granting proxies would need to

revise and, perhaps, amend the documentation that they had prepared or sent to cast their votes using these methods if they were

considered to have voted in favor of any proposed resolution submitted by any shareholder (this same reasoning would apply

shareholders that leave the Shareholders Meeting after it has already been assembled).

41

In any case, it should be noted that no authorized shareholder has, prior to the meeting of the Annual General Shareholders Meeting on

29 June 2017, exercised its right to add additional agenda items or to present new proposed resolutions.

11. That, in the case the company intends to pay premiums for attendance at the general shareholders

meeting, it should establish, in advance, a general policy for said premiums, and said policy shall be

stable.

Complies Partially complies Explain Not Applicable X

12. That the board of directors should perform its duties with unity of purpose and independent judgment,

providing equal treatment to all shareholders in the same situation, and should be guided by the best

interests of the company, which shall be understood as developing a profitable business that can be

sustained in the long term, promoting the viability of the company and maximizing its financial value.

And that in pursuing the corporate interests, the board, in addition to abiding by laws and regulations,

should follow good faith and ethical principles and observe commonly accepted customs and good

practices, aiming to reconcile the corporate interests with, as applicable, the legitimate interests of its

employees, suppliers, clients and other interest groups that may be affected, as well as with the

impact of the company's activities on the environment and the community as a whole.

Complies X Partially Complies Explain

13. That the board of directors should have the required scope to ensure its effective operation and

participation at its meetings, for which purpose the board should have between five and fifteen

members.

Complies X Explain

14. That the board of directors should approve a director selection policy that:

a) Is specific and attestable.

b) Ensures that the proposals for appointment or reappointment are based on a prior analysis of the

needs of the board of directors.

c) Favors diversity of knowledge, experience and gender.

That the result of the prior analysis of the needs of the board of directors should be included in the

justifying report of the appointments committee, which is published when the general shareholders

meeting is convened in order to ratify, appoint or reappoint each director.

And that the director selection policy should promote the objective of having female directors account

for at least 30% of the total number of board members by 2020.

The appointments committee shall verify compliance with the director selection policy on an annual

basis and shall report on said policy in the annual corporate governance report.


15. That the shareholder-appointed and independent directors should constitute a broad majority of the

board and that the number of executive directors is the minimum necessary, taking into account the

complexity of the corporate group and the percentage interest held by the executive directors in the

share capital of the company.


42

X

X

16. That the percentage of shareholder-appointed directors in relation to the total number of non-

executive directors should not exceed the proportion between the share capital of the company

represented by said directors and the remaining share capital.

These criteria may be modified:

a) In companies with high capitalization and in which shareholdings legally considered to be

significant are limited.

b) In companies where several shareholders are represented on the board of directors and are not

related to one another.

Complies Explain

The Company does not comply with this recommendation, as two of its primary shareholders are considered executive directors and

cannot be considered shareholder-appointed directors; all of the shareholders currently holding a significant interest in the company

form part of its Board of Directors. Furthermore, the independent directors comprise a majority of the non-executive directors, with

double as many independent directors as there are shareholder-appointed directors (4 vs 2).

17. That the number of independent directors should represent at least one half of the total number of directors.

That, nevertheless, when the company does not have high capitalization or when, even if having high

capitalization, it has one or more shareholders acting jointly that control 30% of the share capital, the

number of independent directors should represent at least a third of total directors.

Complies Explain

18. That companies should publish and update the following information on their directors on their

website:

a) Professional profile and biography.

b) Other boards of directors of which they are a member, whether of a listed company or not, as well

as any other compensated activities carried out, regardless of the nature thereof.

c) Indication of the director's category, identifying, in the case of shareholder-appointed directors, the

shareholder that they represent or are linked to.

d) The date of their first appointment as a director of the company, as well as of all subsequent

reappointments.

e) The shares of the company and option rights thereon that they own.


The Company has made public on its website all information referred to in the recommendation except information on other

compensated activities of any nature carried out by the directors; this is the case due both to the practical difficulty of gathering the

information referred to in this recommendation, taking into account that it includes any type of activity regardless of the materiality

thereof (conferences, publication of articles, teaching activities, etc.), as well to the confidential and personal nature of this information.

19. That the annual corporate governance report, following verification by the appointments committee,

should explain the reasons for the appointment of shareholder-appointed directors at the request of

the shareholders whose interest in share capital is less than 3%. It should also explain, where

applicable, why formal requests from shareholders for membership on the board were not honored,

when their interest is equal to or exceeds that of other shareholders whose proposal for shareholder-

appointed directors was honored.


X

X

43

20. That the shareholder-appointed directors should tender their resignation when the shareholder

represented thereby fully transfers its shareholding. And that they should also resign, by the relevant

number, when said shareholder reduces its shareholding to a level that requires a reduction in the

number of shareholder-appointed directors.

Complies Partially Complies Explain Not Applicable X

21. That the board of directors may not propose the dismissal of any independent director before the

completion of the mandate period for which the member was appointed in accordance with the bylaws,

unless just cause is identified by the board following a report from the appointments committee. In

particular, just cause shall be deemed to exist when the director is appointed to new positions or

undertakes new obligations that prevent said director from dedicating the time required to perform the

duties inherent in its position as a director, that result in the breach of the duties inherent in its position

or that results in any circumstances that would cause the director to lose his/her condition as

independent, in accordance with applicable legislation.

The dismissal of independent directors may also be proposed as a result of a public tender offer,

merger or other similar operation implying a change in the share structure of the company, provided

that such changes in the structure of the board of directors are required by virtue of the proportionate

representation criteria discussed in recommendation 16.

Complies X Explain

22. That companies should set rules requiring that directors report on and, where appropriate, resign from

their positions in those circumstances that could harm the company’s credit and reputation and, in

particular, requiring that they report to the board of directors any criminal actions with which they are

charged, as well as the subsequent legal proceedings.

And that if a director is tried or called to court for any of the crimes set out in corporations law, the

board must investigate the case as soon as possible and, based on the particular situation, decide

whether the director should continue in his or her position. And that the board of directors must provide

a reasoned written account of these events in its annual corporate governance report.


23. That all directors must clearly express their opposition when they consider that any proposal

submitted to the board of directors could go against the company’s interests. And that this should also

apply to both independent and other directors that are not affected by the potential conflict of interest if

the decision could be detrimental to any shareholders not represented on the board of directors.

And that when the board of directors adopts significant or repeated resolutions regarding which the

director has voiced serious reservations, the director should draw the appropriate conclusions and, in

case of resignation, explain the reasons for this decision in the letter referred to in the next

recommendation.

This recommendation also applies to the secretary of the board of directors, despite not being

considered a director.

Complies X Partially Complies Explain Not Applicable

24. That whenever, due to resignation or any other reason, directors leave their position before the

completion of their mandate, they shall be required to explain the reasons for this decision in a letter

addressed to all the members of the board of directors. And that, regardless of whether said

resignation has been reported as a relevant event, the reason for leaving their position must be

included in the annual corporate governance report.

44

X

X

X

X

X

X


25. That the appointments committee should ensure that the non-executive directors have enough time to

properly perform their duties.

And that the board regulations should establish the maximum number of boards of directors of which

the directors may form part.


26. That the board of directors should meet with the frequency necessary to perform its duties efficiently

and, at least, eight times each year, following the schedule and agenda established at the beginning of

each year. Directors should be able to individually propose additional agenda items beyond those

initially included on the agenda.


27. That directors’ failure to attend should be limited to extraordinary cases and should be quantified in

the annual corporate governance report. And that, in case of such absence, a proxy should be granted

with instructions.


In accordance with section C.1.30, the Company has covered 96.66%, as calculated in accordance with the instructions for completing

this report, not by number of meetings attended by all of the Directors as compared to total meetings held, but rather by the number of

votes (87) as compared to the total number of available votes (90). In 2017, there were three cases of directors not attending and not

granting a proxy with instructions for such meetings.

28. That when the directors or the secretary voice any concern regarding any proposal or, in the case of

directors, regarding performance of the company, and their concern is not resolved by the board of

directors, such circumstance shall be stated for the record at the request of the individual who raised

it.


29. That the company should establish the channels necessary to ensure that the directors may obtain

the advising required to perform their duties including, if required by the circumstances, external

advising at the company's expense.


30. That, regardless of the knowledge required of the directors to perform their duties, the companies

should offer knowledge update programs to the directors when the circumstances so require.

Complies Explain Not Applicable

31. That the agenda for meetings should clearly state the agenda items that will be resolved upon at the

board of directors meeting so that the directors may study or gather the information required for its

adoption in advance.

X

45

X

X

X

X

X

The prior and express consent of the majority of the directors in attendance shall be required, and duly

recorded in the minutes, if the chairman wishes, on an exceptional and urgent basis, to propose

decisions or resolutions to the board of directors that were not listed on the agenda.


32. That the directors should be regularly informed of any changes in shareholdings and of the opinion of

significant shareholders, investors and credit rating agencies as regards the company and its group.


33. That the chairman, as the responsible party for the effective operation of the board of directors, in

addition to exercising all duties conferred thereto by law and the bylaws, shall prepare and submit to

the board of directors a schedule of dates and issues to be addressed; organize and coordinate the

regular assessment of the board, as well as, as the case may be, of the top executive of the company;

be responsible for the management of the board and for the effectiveness of its operation; ensure that

enough time is spent discussing strategic questions; and resolve on and revise knowledge update

programs for each director, when so required by the circumstances.


34. That when there is a coordinating director, the bylaws or board of directors regulations should, in

addition to the duties attributed thereto by law, attribute the following duties to the coordinating

director: to chair the board of directors in the absence of the chairman and vice chairmen, if any; to

voice the concerns of the non-executive directors; to maintain contact with investors and shareholders

to learn about their points of view in order to form an opinion on their concerns, in particular, in relation

to the company's corporate governance; and to coordinate the succession plan for the chairman.


Article 10 bis of the Board of Directors Regulations establishes that "if the Chairman is an Executive Director, the Board of Directors, with

all Executive Directors abstaining, shall necessarily appoint a Coordinating Director from among the Independent Directors, who shall be

specifically empowered to convene a meeting of the Board of Directors, add new items to the agenda for Board meetings that have

already been called, preside over the Board of Directors in the absence of the Chairman and of the Vice Chairmen, coordinate and

gather Non-Executive Directors, coordinate the succession plan for the Chairman and, as the case may be, carry out periodic

assessments of the Chairman of the Board of Directors."

For such purpose, the Company is considered to partially comply with this recommendation, as the only duty of those listed in the

recommendation that the Coordinating Director does not perform is that of "maintaining contact with investors and shareholders." This

duty is performed by the Investor Relations and Capital Markets Department, which keeps the Board of Directors duly informed in such

regard.

35. That the secretary of the board of directors should ensure, in particular, that the conduct and

decisions of the board of directors take into account the good governance recommendations

applicable to the company under this Corporate Governance Code.

Complies Explain

36. That the board of directors, in a plenary session, should annually assess and adopt, as the case may

be, an action plan to correct the deficiencies identified in relation to:

a) The quality and efficiency of the functioning of the board of directors.

46

X

X

X

X

b) The functioning and composition of its committees.

c) The diversity in the composition and competencies of the board of directors.

d) The performance of the chairman of the board of directors and of the company's top executive.

e) The performance and contributions of each director, paying particular attention to the heads of the

different board committees.

In order to assess the different committees, such assessments shall be based on the reports submitted

thereby to the board of directors and, as regards assessment of the board itself, on the report submitted

by the appointments committee.

Every three years, the board of directors shall be assisted in carrying out an assessment by an external

consultant, the independence of which shall be verified by the appointments committee.

The business relations held by the consultant or any of its group companies with the company or any

other group company shall be described in the annual corporate governance report.

The process and areas assessed shall be described in the annual corporate governance report.


37. That if there is an executive committee, the structure of the participation by the different categories of

directors shall be similar to that of the board of directors itself, and its secretary shall be the board

secretary.


The Company has created an Executive Committee whose Chairman and Secretary are the Chairman and Secretary of the Board;

however, the participation structure of the different types of directors is not totally the same as that of the Board of Directors, as this would

not be possible given that the Board is comprised of directors belonging to four different categories and the Committee is comprised, in

compliance with the Board Regulations, of only three members; this means that each member of the Committee necessarily represents

33.33% thereof and thus, it is mathematically impossible to duplicate the percentage of the different categories of Directors on the Board.

Taking into account that the Board of Directors is currently comprised of nine members, it is estimated that the Executive Committee

should have three members. Due to the own nature thereof, the Executive Directors (two in the case of the Company) shall be part of said

Committee. The fact that the two executive directors are also the first and fourth largest shareholders in the Company should also be

taken into account. The third member of the Executive Committee is an external non-shareholder appointed director. In light of the above

the Company has concluded that the composition of the Exeuctive Committee is balanced.

38. That the board of directors must always be aware of the subjects discussed and decisions adopted by

the executive committee and that all members of the board of directors should receive a copy of the

minutes of the executive committee meetings.


The Board is regularly notified of key decisions made by its Committees. The minutes of the meetings of all Committees are submitted to

the members thereof for approval and are made available to all Directors for review. All of the Company's Directors are members of one

of its Committees (in fact, the Audit Committee is comprised of five directors of the nine on the Board of Directors, and the Appointments

and Compensation Committee is comprised of four directors), and several external directors are also Board members in one of the

Company's subsidiaries. The Board believes the current system is effective.

39. That the members of the audit committee, and in particular its chairman, should be appointed

considering their knowledge and experience in the area of accounting, auditing or risk management,

and that the majority of its members should be independent directors.


47

40. That under the supervision of the audit committee, the company shall have a unit dedicated to

performing internal audit duties and which ensures the proper functioning of the internal reporting and

control systems and functionally reports to the non-executive chairman of the board or of the audit

committee.


41. That the person in charge of the unit performing the internal audit duties shall present an annual work

plan to the audit committee, report directly on any issues that may arise in its implementation and

submit an activity report at the end of each fiscal year.

Complies X Partially Complies Explain Not Applicable

42. That, in addition to those duties provided by law, the audit committee should have the following duties:

1. As regards reporting and internal control systems:

a) To supervise the preparation process and the integrity of the financial information relating to

the Company and, as the case may be, to the group, reviewing compliance with regulatory

requirements, the proper scope of the consolidated Group and the correct application of

accounting principles.

b) To ensure the independence of the internal auditing unit; propose the selection,

appointment, reappointment and removal of the party responsible for the internal auditing

services; propose the budget for such service; approve the direction and plans for its

services to ensure that the activity focuses primarily on relevant risks for the company;

receive regular reports on its activities and, in any case, a final report for each fiscal year;

and verify that Senior Management takes the conclusions and recommendations of such

reports into account.

c) To establish and monitor a mechanism that allows employees to communicate,

confidentially and, if possible and deemed appropriate, anonymously, any potential

significant irregularities, in particular financial and accounting irregularities, observed from

within the company.

2. As regards the external auditor:

a) If the external auditor resigns, to examine the circumstances leading to this resignation.

b) To ensure that compensation of the external auditor does not compromise quality or

independence.

c) To oversee that the company reports the change of auditor as a material event to the

Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores -

CNMV), which shall be accompanied by a statement on any potential disagreements with

the outgoing auditor and, if any, the content thereof.

d) To ensure that the external auditor holds an annual meeting with a plenary session of the

board of directors in order to inform them of the work performed and the financial position of

and risks faced by the company.

e) To ensure that the company and the external auditor respect rules in force on the provision

of non-auditing services, limits on the concentration of the auditor’s business and, in

general, any other rules on the independence of the auditors.


43. That the audit committee may request the presence of any employee or executive of the company,

even without the presence of any other officers.


48

44. That the audit committee should be aware of any transactions proposed by the company that would

implement structural and corporate changes in order to analyze such transactions and report to the

board of directors regarding the financial terms and accounting effects thereof and, in particular, as the

case may be, regarding the proposed exchange ratio.


45. That the risk control and management policy should identify at least the following:

a) The different types of risk, including financial and non-financial risks (including but not limited to

operating, technological, legal, social, environmental, political and reputation), faced by the

company, including under financial and economic risks any contingent liabilities and other off-

balance sheet risks.

b) An established risk level deemed acceptable by the company.

c) The measures intended to mitigate the impact of the risks identified, in the event that they

materialize.

d) The internal control and reporting systems that will be used to control and manage the

aforementioned risks, including contingent liabilities and off-balance sheet risks.


Not all of the aspects identified in this recommendation have been laid out in the risk control and management policy. Nevertheless, the

Company has already implemented an exhaustive control system for financial reporting and has also developed a risk map in relation to

criminal risks. Furthermore, each of the business units comprising the Group identifies risks, on an annual basis, that its business could

face in the upcoming fiscal year; they classify these risks based on how serious the risks are and propose, as the case may be,

mitigating actions, all of which is presented to the Audit Committee on an annual basis. The Company has also established a complaints

channel through which employees, officers, and directors of the Group may file complaints regarding any type of irregularity identified.

This channel will be managed by the Conduct Committee, which was established by resolution of the Board of Directors on 26 January

2016. The Company also has a Monitoring Committee, which ensures application of the Internal Regulations on Conduct in Securities

Markets.

Finally, as previously stated above, the Company has an Internal Audit Department that functionally reports to the Audit Committee.

46. That under the direct supervision of the audit committee or, as the case may be, of a specialized

committee of the board of directors, there is an internal audit and risk management function carried out

by one of the company's internal units or departments, which is expressly assigned the following

duties:

a) To ensure proper operation of the risk control and management systems and, in particular, to

ensure the identification, management and proper quantification of the substantial risks faced by

the company.

b) To actively participate in developing the risk strategy and making important decisions related to the

management thereof.

c) To ensure that risk control and management systems properly mitigate risks under the framework

of the policy established by the board of directors.


Given the size of the Company, an internal risk control and management function performed by an internal unit or department is not

considered necessary at this time, as this internal risk control and management function is performed in practice by the Audit Committee.

Furthermore, the Company's internal auditing department is tasked with ensuring the proper functioning of the reporting and internal

control systems. The Company also has a Monitoring Committee, which ensures application of the Internal Regulations on Conduct in

Securities Markets. The Company also has a Conduct Committee responsible for managing the complaints channel provided for in the

Code of Conduct of the Pharma Mar Group (Ethical Code).

X

X

X

49

47. That the members of the appointments and compensation committee –or of the appointments

committee and the compensation committee, if separate– shall be appointed ensuring that they have

the proper knowledge, skills and experience to perform the duties required therefrom and that the

majority of its members shall be independent directors.


48. That companies with high capitalization shall have an appointments committee and a separate

compensation committee.

Complies X Explain Not applicable

49. That the appointments committee shall consult the chairman of the board of directors and the top

executive of the company, in particular in matters related to the executive directors.

And that any director may ask the appointments committee to consider potential candidates he or she

considers appropriate, in his/her opinion, to fill a vacancy on the board of directors.


50. That the compensation committee should carry out its duties independently and that, in addition to the

duties granted thereto by law, should have the following duties:

a) To propose to the board of directors the basic contracting conditions signed with senior executives.

b) To verify compliance with the compensation policy established by the company.

c) To regularly review the compensation policy for the directors and senior executives, including share

compensation systems and their application, as well as to ensure that individual compensation is

proportionate to the amounts paid to the other directors and senior executives of the company.

d) To ensure that any potential conflicts of interest do not threaten the independence of any external

advising provided to the committee.

e) To verify information regarding compensation of directors and senior executives provided in

various corporate documents, including the annual report on director compensation.


51. That the compensation committee should consult the chairman and the top executive of the

company, in particular in matters related to the executive directors and senior executives.


52. That the rules on the composition and functioning of the monitoring and control committees should be

provided in the board of directors regulations, which should comply with all rules applicable to those

legally required committees in accordance with the preceding recommendations, including:

a) That they should be exclusively comprised of non-executive directors, with a majority of

independent directors.

b) That they must be chaired by independent directors.

50

c) That the board of directors should appoint the members of these committees taking into account

the knowledge, skills and experience of the directors and the terms of reference of each committee;

that their members report to the board of directors, at the first plenary session thereof following

each of the committee meetings, on its activities and work performed.

d) That the committees may request external advising as deemed necessary to perform their duties.

e) That minutes should be drafted for the meetings, which shall be made available to all directors.


53. That monitoring of compliance with corporate governance rules, internal codes of conduct and the

corporate social responsibility policy should be attributed to one or more committees of the board of

directors, which could include the audit committee, appointments committee, corporate social

responsibility committee, if any, or any specialized committee of the board of directors which, in the

performance of its self-organization duties, it decides to establish for such purpose, to which the

following specific minimum duties shall be attributed:

a) To monitor compliance with the internal codes of conduct and the corporate governance rules of

the company.

b) To monitor the communications strategy and relationships with shareholders and investors,

including small and medium shareholders.

c) To regularly assess whether the company's corporate governance system is appropriate with a

view to ensuring that its objective of promoting corporate interests is met and taking into account,

as applicable, the legitimate interests of the remaining interest groups.

d) To review the company's corporate social responsibility policy, ensuring it is aimed at creating

value.

e) To monitor the corporate social responsibility strategy and practices and assess compliance

therewith.

f) To monitor and assess the engagement processes for different interest groups.

g) To assess all aspects related to the company's non-financial risks, including operating,

technological, legal, social, environmental, political and reputation risks.

h) To coordinate the process for reporting non-financial and diversity information in accordance with

the applicable regulations and international benchmark standards.


Given the size of the Company, the Company considers that it would be inefficient at this time to distribute all of the duties among

the different Board Committees. The monitoring of compliance with corporate governance and corporate social responsibility

strategy and practices is currently still performed, ultimately, by the Board of Directors. The Company also has a Monitoring

Committee that ensures application of the Internal Regulations on Conduct in Securities Markets and a Conduct Committee

responsible for managing the complaints channel provided for in the Code of Conduct of the Pharma Mar Group (Ethical Code).

The Audit Committee is responsible for overseeing said mechanism allowing for employees to communicate any potentially

relevant irregularities on a confidential basis, including in particular financial and accounting concerns from within the company

(Art. 13.3.c of the Board Regulations).

54. That the corporate social responsibility policy should incorporate the principles and commitments

voluntarily assumed by the company in its relations with various interest groups and identifying at

least:

a) The objectives of the corporate social responsibility policy and the implementation of support

instruments.

b) The corporate strategy as regards sustainability, the environment and social issues.

X

X

51

X

X

X

X

c) The specific practices in matters related to: shareholders, employees, clients, suppliers, social

issues, environment, diversity, tax liability, respect of human rights and prevention of illegal

conduct.

d) The methods or systems for monitoring the results of application of the specific practices indicated

in the preceding paragraph, associated risks and management thereof.

e) The mechanisms for monitoring non-financial risks, ethics and business conduct.

f) The channels for communication, participation and dialog with interest groups.

g) The practices of responsible communication that prevent manipulation of information and protect

integrity and honor.


The Company annually publishes a corporate social responsibility report (with information on corporate governance, corporate

organization, management structure, good governance policy and ethical management, patients, clients, suppliers, employees,

shareholders, environment and environmental indicators, social action, primary contributions, communities, regulatory authorities, etc.)

that can be considered its corporate social responsibility policy. This report does not address all content required by this

recommendation, but rather focuses on issues deemed appropriate for a company the size of Pharma Mar, in view of its human and

financial resources.

55. That the company should report, in a separate document or in the management report, on all aspects

related to corporate social responsibility, applying for such purpose internationally accepted

methodologies.


Prior to the Annual General Shareholders Meeting held on 29 June 2017, the Company published and made available to its

shareholders a corporate social responsibility report addressing its activities in this area during 2016; however, although model

corporate social responsibility reports of international pharmaceutical companies were used to prepare this report, the primary

manner in which internationally accepted methodologies were not complied with was to the extent such methodologies required

auditing of the report. Said audit was not completed as the Company considered the cost incurred to be disproportionate in view of

the resources it has available. Furthermore, starting in fiscal year 2018 as relates to the consolidated Annual Financial Statements

for fiscal year 2017, the Company will include a non-financial information statement in its management report in line with Art. 49.6 of

the Commercial Code, as stated by Royal Decree-Law 18/2017 of 24 November amending the Commercial Code; the amended and

restated text of the Capital Corporations Law, approved by Royal Legislative Decree 1/2010 of 2 July; and Law 22/2015 of 20 July,

on Account Auditing, as relates to non-financial and diversity information.

56. That director compensation should be set as required to attract and retain directors with the desired

profile and to compensate them for the dedication, qualifications and responsibility required in the

position, without being so high as to compromise the independence of the non-executive directors.

Complies Explain

57. That compensation of executive directors should be limited to variable compensation linked to

performance of the company and the individual, as well as compensation in the form of delivery of

shares, options or share rights or instruments referencing share value and long-term savings systems

such as pension plans, retirement funds or other social welfare systems.

Delivery of shares as compensation of non-executive directors may be used, provided the directors

are required to hold said shares until they no longer serve as directors. The foregoing shall not apply

to shares that the director needs to dispose of, as the case may be, in order to pay the relevant

acquisition costs.


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X

X

X

X

58. That variable compensation policies should incorporate the necessary technical precautions and

restrictions to ensure that this compensation rewards the professional performance of its beneficiaries

and does not solely derive from the general performance of the markets or of the activity sector of the

company, or from any other similar circumstances.

And, in particular, that the variable compensation items should:

a) Be linked to performance criteria that are predetermined and measurable and that said criteria

should take into account the risk assumed in obtaining a result.

b) Promote the sustainability of the company and include appropriate non-financial criteria for creating

long-term value, such as compliance with the company's internal rules and procedures, as well as

with its risk control and management policies.

c) Be established based on a balance between meeting short, medium and long-term objectives,

enabling compensation for continued performance during a sufficient period of time to measure

their contributions to creating sustainable value, such that the measurement elements for this

performance are not solely based on one-off, occasional or extraordinary events.


59. That payment of a significant part of the variable compensation components should be differed for a

minimum period of time sufficient to verify that the previously established performance conditions have

been met.


60. That, in calculating any compensation linked to profits, the company should consider any potential

reservations included in the external auditor’s report that reduce said profits.


61. That a material percentage of the variable compensation of the executive directors should be linked to

the delivery of shares or financial instruments linked to their value.


Executive director compensation does not in any way involve the delivery of shares or financial instruments linked to share value, as

the interests of the executive directors are already considered sufficiently in line with the Company's interests, given that the executive

directors are the primary shareholders of Pharma Mar.

62. That once the shares or options or share rights have been contributed to the compensation system,

the directors may not transfer ownership of a certain number of shares equivalent to two times fixed

annual compensation, nor may exercise the options or rights until a period of at least three years from

allocation thereof has elapsed.

The foregoing shall not apply to shares that the director needs to dispose of, as the case may be, in

order to pay the relevant acquisition costs.


63. That contractual agreements should include a clause authorizing the company to request

reimbursement of the variable compensation if the payment amount was not in line with actual

performance or if it is subsequently determined that payments were based on data that was clearly

erroneous.

X

53

X

X


In relation to the agreements currently in force, it is considered unnecessary to amend such agreements solely to include a

reimbursement clause for variable components, bearing in mind that said claim is considered to be permitted at all times even if not

expressly stated in a clause for such purpose in the agreement, as is generally the case for any improper payment or payment without

cause. In the future, in the event that agreements are executed with new executive directors, the convenience of including this type of

clause referred to in the recommendation will be analyzed when negotiating such agreements.

64. That payments for terminating contracts should not exceed an established amount equivalent to two

years of total annual compensation and that they should not be paid out until the company has verified

compliance by the director with the previously established performance criteria.


OTHER INFORMATION OF INTEREST

1. If there is any other relevant aspect as regards corporate governance of the company or any of its

groups companies that has not been included in the rest of the sections of this report, but which

should be included in order to gather more complete and reasoned information on the corporate

governance structure and practices of the company or its group, please briefly describe such

information below.

2. Any other information, clarification or specifications related to the previous sections of this report

may be included in this section, to the extent it is relevant and not redundant.

In particular, please indicate whether the company is subject to any corporate governance

legislation other than that prevailing in Spain and, if so, include that information required to be

provided under such legislation and that differs from that requested in this report.

3. The company may also indicate whether it has voluntarily adhered to any other international,

industry or other ethical codes or codes of good practice. If so, please identify the code in question

and the date of accession.

-

This annual corporate governance report has been approved by the company's Board of Directors at its

meeting held on 28/02/2018.

Please indicate whether any directors have voted against or abstained from the approval of this Report.

Yes No

H

X

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This Corporate Governance Report covers the company Pharma Mar, S.A. (“Pharma Mar” or

the “Company”) in its condition as a listed company, a condition which it attained on the date

its shares were admitted to trade on the official Madrid, Barcelona, Bilbao and Valencia Stock

Exchanges (2 November 2015).

In relation to section A.6, the shareholder agreement notified by the Company to the CNMV as

a Relevant Event on 25 May 2017 is described below.

Within the framework of the license and marketing agreement executed between Pharma Mar

and Specialised Therapeutics Asia Pte, Ltd (“STA”), Pharma Mar executed a subscription

agreement with Specialised Therapeutics Investments Pty LTD ATF The Specialised

Therapeutics Unit Trust (the “Subscriber”) by virtue of which the Subscriber subscribed to

444,400 new shares (“Shares Subscribed”) in the Company, undertaking not to engage in the

following conduct without the prior written consent of the Company, for the period running

from the Execution Date hereof until (i) the second anniversary of the Delivery Date of the

Shares Subscribed, for 50% of the Shares Subscribed; and (ii) the fourth anniversary of the

Delivery Date of the Shares Subscribed, for the remaining 50% of the Shares Subscribed (the

“Non-Disposal Period”):

(i) offer, provide, pledge, sell, commit to sell, sell any purchase option or commitment,

purchase any option or commitment to sell, mortgage, encumber, assign, grant any option or

right to purchase or in any other manner transfer or dispose, directly or indirectly, of the

Shares Subscribed or of any securities exchangeable for the Shares Subscribed;

(ii) enter into any swap or any other agreement or transaction by virtue of which the

economic rights attached to ownership of the Shares Subscribed are directly or indirectly

transferred;

(iii) carry out any other transaction with analogous economic effects as those described in

paragraphs (i) and (ii), supra, or agree to carry out or to announce or publicize in any manner

whatsoever its intent to engage in any of the above-mentioned conduct, regardless of whether

the transactions or swap agreements referred to in paragraphs (i) and (ii), supra, are settled by

delivery of the Shares Subscribed or of any other securities, in cash or otherwise.

The Subscriber may, upon expiration of the Non-Disposal Period and subject to applicable

regulations, freely dispose of the Shares Subscribed.

As a supplement to section A.9:

a) Resolution Three of the Annual General Shareholders Meeting of Pharma Mar held on 29

June 2017 establishes the following:

To authorize the Board of Directors, in accordance with the provisions of Article 297.1.b) of the

Spanish Capital Corporations Law (Ley de Sociedades de Capital), to increase share capital,

within a maximum period of five years, if deemed convenient, by an amount equal to half of the

current share capital, on a one-time basis or several times, in the manner and amount deemed

appropriate, granting the power to exclude preemptive subscription rights, provided in all cases

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said right of exclusion shall be subject to a limit of 20% of the Company's share capital under

the terms laid out in the proposed resolutions. Revoke and invalidate any unimplemented

portions of Resolution Eleven of the General Shareholders Meeting held on 30 June 2015.

I) Revoke and invalidate any unimplemented portions of the authorization granted by

virtue of Resolution Eleven of the General Shareholders Meeting held on 30 June 2015.

II) Authorize the Board of Directors, as extensively as may be required by law, in

accordance with the provisions of Article 297.1.b) of the Spanish Capital Corporations Law, to

increase share capital, on a one-time basis or several times, within a maximum period of five

years of the holding of this General Meeting, by a maximum amount equal to half of the share

capital of Pharma Mar, S.A. at the time this General Meeting is held, by issuing new shares,

with or without a premium, with the counter value of the new shares being settled by way of

monetary contributions. In this regard, the Board of Directors may also set the terms and

conditions of the capital increase as well as the characteristics of the shares, including

determining the investors and markets to whom the capital increase will be directed and the

placement procedure to be followed, freely offering new unsubscribed shares in the preemptive

subscription period(s); provide that, in the event of an incomplete subscription, capital shall

only be increased in the amount of subscriptions made; and amend provisions of the corporate

Bylaws as related to capital. The available limit from time to time shall include the amount of

capital increases that, as the case may be, with a view to converting bonds, are carried out in

accordance with the resolution passed in relation to Agenda Item Four of this General

Shareholders Meeting. Furthermore, the Board of Directors is entitled to exclude, in whole or in

part, preemptive subscription rights under the terms of Article 506 of the Spanish Capital

Corporations Law, provided in all cases the nominal amount of any capital increases agreed to

or effectively carried out pursuant to the authority delegated herein and in the resolution

proposed under Agenda Item Four of this Meeting to exclude preemptive rights shall not exceed

a maximum nominal amount, jointly, of 20% of the Company's share capital at the time of this

delegation. In any event, if the Board decides to exclude preemptive subscription rights in

relation to any or all such capital increase(s), the Board shall, at the time the resolution for

capital increase is passed, issue a report detailing the specific corporate interests justifying such

measure, which shall be subject to the relevant report of the statutory auditor as referred to in

Article 506 of the Spanish Capital Corporations Law. Said reports shall be made available to the

shareholders and shall be reported to the first General Meeting to be held after the resolution

on the issue was adopted.

This authority includes the power to carry out any procedures necessary to ensure the new

shares under the capital increase(s) are admitted to trade on the securities markets on which

the shares of Pharma Mar, S.A. are listed, as well as on any other stock exchanges, regulated

markets, multi-lateral trading systems or other trading markets or systems, whether in Spain or

abroad, in accordance with the procedures set forth for each such trading market or system,

and in all cases complying with applicable rules on admission, listing and delisting.

The Board of Directors is also authorized to delegate the powers granted by this resolution to

the Executive Committee or to any other Director or individual as it deems appropriate,

provided said powers are delegable under law.

b) Resolution Five of the Annual General Shareholders Meeting of Pharma Mar held on 29 June

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2017 establishes the following:

To authorize the Board of Directors, with express power of substitution, to buyback treasury

stock either directly or through Group companies.

Pursuant to the provisions of Article 146 and related provisions and of Article 509 of the

Spanish Capital Corporations Law, it is resolved to authorize the Company's Board of Directors

(as well as its subsidiaries), with the express power of substitution, to acquire, during a period

of five years from the date of this General Meeting, at any time and as many times as deemed

appropriate and by any means permitted by law, the Company's shares in accordance with the

following provisions and requirements in addition to those provided by the legal provisions in

force:

A. Means of acquisition

Acquisitions shall be made through sale and purchase transactions, swap transactions or other

means permitted by law.

B. Maximum limit

Company shares with a par value, in aggregate with shares already held by the Company and

its subsidiaries, that does not exceed 10% of the Company's subscribed capital from time to

time.

C. Purchase price when for consideration

(i) Maximum acquisition price: 10% of the trading price of the Company's shares in

the Spanish Stock Exchange Interconnection System at the time of acquisition.

(ii) Minimum acquisition price: par value of the Company's shares.

The Company's Board of Directors (and the boards of its subsidiaries) are authorized, for the

period and in accordance with the terms established in the preceding paragraphs to the extent

applicable and at arm's length, to acquire the Company's shares using loans.

It is hereby expressly authorized that treasury stock acquired may be used in whole or in part

towards (i) its disposal; (ii) delivery to employees, officers, directors (for the purposes provided

in Article 146 of the Spanish Capital Corporations Law); and (iii) reinvestment plans for

dividends or similar instruments.

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Render void the unimplemented portion of Resolution Four of the General Shareholders

Meeting held on 23 June 2016, also governing authorization to acquire treasury stock.

As a supplement to section A.10, it is worth noting that Article 25.3 of the Bylaws establishes

the following as restrictions on the exercise of the voting right:

- No shareholder may cast a number of votes exceeding 25% of total voting capital from

time to time, even when the number of shares held thereby is greater than the aforesaid

capital percentage. This limit shall not affect the votes applicable to the shares represented by

a shareholder by proxy (in the terms provided in Article 19 of the Bylaws), notwithstanding the

individual application to each shareholder so represented of the same 25% limit for the votes

related to the shares held thereby.

- This restriction shall also apply to: (i) the maximum number of votes that may be cast –

jointly or separately– by two or more corporate shareholders belonging to the same corporate

groups; and (ii) the maximum number of votes that may be cast by a natural person

shareholder and the company or companies, also shareholder(s), which are controlled by said

natural person, whether cast jointly or separately.

- Those shares that belong to one holder, to a group of entities or to a natural or legal

person, and the companies controlled by said natural or legal person, as well as all individuals

or entities acting collectively with the aforementioned, shall be fully accounted for among the

shares attending the Shareholders Meeting to obtain the necessary quorum in terms of capital

required to hold the meeting, but at the time of voting, the aforementioned limit on the

number of votes (25%) shall apply.

- Article 25.3 of the Bylaws states that the limit established in this section shall cover any

material subject to a decision of the General Shareholders Meeting, including the appointment

of directors by the proportional system, but excluding amendment of its Article 25, which shall

in any case require the approval of a qualified majority of 75% of the capital present in person

or by proxy, in first and second call.

- The limit shall be null and void when, following a public tender offer, the offeror has

reached a percentage equal to or greater than 70% of the voting capital, unless said offeror

was not subject to equivalent neutralization measures, or if such measures were not adopted,

as provided in Article 527 LSC. The elimination of the aforesaid limits shall be effective as of

the date on which the results of the payment of the offer are published in the Quotation

Bulletin of the Madrid Stock Exchange.

In relation to section C.1.11, it should be added that José María Fernández Sousa-Faro is also

the Chairman of the Board of Directors of Sylentis, S.A. Unipersonal, a wholly-owned subsidiary

of Pharma Mar, and holds a general power of attorney. José María Fernández Sousa-Faro is

also a natural person representative of Pharma Mar on the Board of Directors of Zelnova

Zeltia, S.A. and does not perform any executive duties nor holds a general power of attorney.

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Pedro Fernández Puentes is a Director on the Board of Directors of Sylentis, S.A. Unipersonal

and does not perform any executive duties nor holds a general power of attorney.

ROSP CORUNNA PARTICIPACIONES EMPRESARIALES, S.L., represented by José Leyte Verdejo, is

a Director on the Board of Directors of Zelnova Zeltia, S.A. and does not perform any executive

duties nor holds a general power of attorney.

Furthermore, it is worth specifying that José Félix Pérez-Orive Carceller, natural representative

of JEFPO, S.L. on the Board of Pharma Mar, is also an individual director of Xylazel, S.A.;

Zelnova Zeltia, S.A.; and Genomica, S.A. Unipersonal, and does not perform executive duties

nor holds a power of attorney in any of the aforementioned companies.

In relation to section C.1.12, it is worth noting that the natural representative of ROSP

CORUNNA PARTICIPACIONES EMPRESARIALES, S.L., José Leyte Verdejo, is the Secretary of

BREIXO INVERSIONES, IICIICIL, S.A. and of SOANDRES DE ACTIVOS SICAV, S.A.

In relation to section C.1.15, it should be noted that the overall compensation of the Board of

Directors for fiscal year 2017 (€3,227 thousand) may be increased by an additional €52

thousand, thus totaling €3,279 thousand. As explained in the 2017 Annual Report on

Compensation, following an analysis of the report submitted by the Appointments and

Compensation Committee in which said Committee assessed achievement of the variable

compensation targets for the Executive Chairman, the Company's Board of Directors, at its

meeting on 28 February 2018, resolved to approve the proposal of the Appointments and

Compensation Committee according to which, as relates to the quantitative targets under the

regulated tranche, if the appeal procedure (request for review) filed by the Company in

relation to the negative opinion issued in December 2017 by the Committee for Medicinal

Products for Human Use (CHMP) of the European Medicines Agency (EMA) against approval of

the marketing authorization request submitted for Aplidin® (plitidepsin), for the treatment of

patients with relapsed multiple myeloma, is ruled in favor of the Company, the quantitative

targets set at the time for the regulated tranche of variable compensation for fiscal year 2017

shall be deemed partially met (50%), resulting in compensation of €52 thousand. The payout of

said compensation, as the case may be, would therefore be subject to attainment of the

variable compensation targets under the regulated tranche for fiscal year 2017, and which

would be considered variable compensation for fiscal year 2017, therefore driving total

compensation for the Board of Directors as a whole for fiscal year 2017 up to a total of €3,279

thousand.

In relation to section C.1.16, it should be noted that Sebastián Cuenca Miranda is also a

director of Xylazel, S.A. Compensation earned in 2017 for his membership on said governing

body (€19 thousand) has been included as part of the figure provided in this section for total

compensation earned.

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In relation to section C.1.19, it is worth noting that:

Article 18 of the Board Regulations refers to the appointment of directors and provides the

following:

1. The Directors shall be appointed by the General Meeting or, in the event of an

unexpected vacancy, by co-optation by the Board of Directors itself up until the next General

Meeting is held and, if a vacancy arises after the General Meeting has already been called but

before it is held, until the following General Meeting. Directors appointed by co-optation shall

not be required to be shareholders.

The appointment of substitutes shall not be required.

2. The Appointments and Compensation Committee shall be responsible for the proposals

for the appointment or reappointment of Directors as regards Independent Directors, and in all

other cases, responsibility shall lie with the Board itself.

The proposal shall, in any case, be accompanied by a justifying report of the Board of Directors

assessing the skills, experience and merits of the proposed candidate. This report shall be

attached to the minutes of the General Meeting or of the Board itself.

The proposal for appointment or reappointment of any non-independent Director shall be

preceded by a report from the Appointments and Compensation Committee.

These provisions shall also apply to natural persons designated as representatives of a

corporate Director. The proposal for a natural representative shall be subject to the report of

the Appointments and Compensation Committee.

3. The Directors shall serve in their positions for a maximum term of four years and may

be reappointed for periods of like duration. The term of the mandate of the Directors shall be

calculated as of the date of the General Meeting in which their appointment or ratification, in

the event of prior appointment by co-optation by the Board of Directors, was made.

4. The Board of Directors may make proposals to the Shareholders Meeting for the

appointment as an Honorary Director of those Directors who, based on their merits and

dedication to the Company, deserve to be granted such title following their removal as

members of the Board of Directors. The appointments made may be deemed void by the Board

itself based on the circumstances of each case. In such case, the General Meeting shall be

provided notice of such circumstances.

Honorary Directors may attend and participate in Board meetings, but with no right to vote,

provided the Board of Directors itself deems it appropriate and they are called to the meeting

by the Chairman in the terms required.

Honorary Directors shall have the right to receive compensation for their condition as such and,

as the case may be, for advising the Board, to the extent determined by the Board of Directors

itself by virtue of the relevant resolution and, as the case may be, execution of the relevant

contractual advising relationship.

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In addition, it should be noted that the Appointments and Compensation Committee is the

body in charge of, on the one hand, bringing proposals for the appointment of independent

directors to the Board of Directors for appointment by co-optation or decision of the General

Shareholders Meeting, as well as for proposals for the reappointment or removal of said

directors by the General Shareholders Meeting and, on the other hand, submitting proposals

for the appointment of the remaining directors for appointment by co-optation or decision of

the General Shareholders Meeting, as well as for proposals for their reappointment or removal

by the General Shareholders Meeting, in accordance with the provisions of Article 14.2.(c) and

(d) of the Board Regulations.

As regards the assessment of the directors, the Chairman shall be in charge of organizing and

coordinating the regular assessment of the Board, as well as of the top executive of the

Company, if the Chairman does not hold this position (Article 10.4.(d) of the Board

Regulations). As regards the assessment referred to in Article 17 bis of the Board Regulations:

1. On an annual basis, the Board of Directors shall evaluate:

(a) the efficiency of their functioning and quality of their performance;

(b) diversity in its composition and skills;

(c) the performance of duties by the Board Chairman and, if any, by the Managing Director, in

view of the report submitted thereto by the Appointments and Compensation Committee;

(d) the performance and contributions of each Director, paying particular attention to the

heads of the different Committees;

(e) the functioning and composition of its Committees in view of the reports submitted thereby

to the Board.

For such purpose, the Chairman of the Board of Directors shall organize and coordinate with

the Chairmen of the Committees regarding the aforementioned assessment process.

2. In the event that the Chairman of the Board of Directors is performing executive duties,

assessment of his or her performance shall be directed by the Coordinating Director.

3. An action plan to correct identified deficiencies shall be developed during the assessment

process.

4. The results of the assessment shall be included in the meeting minutes or as an attachment

thereto.

Furthermore, it is worth noting that Article 10bis of the Board Regulations provides that, in

accordance with Article 529 septies 2 of the Capital Corporations Law, the Coordinating

Director shall be in charge of directing the regular assessment of the Chairman of the Board of

Directors.

Article 19 of the Board Regulations refers to the removal of directors and provides the following:

1. The Directors shall be removed when the period for which they were appointed has elapsed

and was not renewed as well as when determined by the General Meeting.

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2. The Directors shall tender their resignation to the Board of Directors and formalize the

pertinent resignation, if deemed appropriate by the Board, in the following cases:

(a) When they turn 75.

(b) If they are involved in any circumstance of incompatibility or prohibition provided by

law, the Corporate Bylaws or these Regulations.

(c) If their continued membership on the Board could put at risk or harm the Company's

interests, credit or reputation.

(d) When they no longer hold an executive position to which their appointment was linked

or, in general, when the reasons for their appointment no longer exist (e.g. when the

shareholder represented by a Director disposes of its shareholding in the Company that

motivated the Director's appointment).

(e) When the Director has missed four consecutive Board meetings without granting a

proxy to another Board member.

The Board of Directors may only propose the removal of an Independent Director to the

General Shareholders Meeting before the period provided for in the Bylaws has lapsed and

when the Director has not tendered his or her resignation after having met any of the said

circumstances referred to in this article or when any other just cause as determined by the

Board exists, following a report of the Appointments and Compensation Committee. In

particular, just cause shall be deemed to exist when the Director accepts additional obligations

that prevent said Director from dedicating the required time to the performance of its duties,

breaches any duties inherent in its position or otherwise is in any circumstances that prevent its

independence. The Board of Directors may also propose the removal of Independent Directors

as a result of public offers of acquisition, merger or other similar corporate transactions that

entail a change to the Company's capital structure, provided such structural changes to the

Board of Directors are a result of application of the proportionality criteria set forth in

corporate governance recommendations for listed companies in Spain.

3. The Appointments and Compensation Committee may make a proposal to the Board of

Directors for submission to the General Shareholders Meeting on the removal of Directors when

their behavior could negatively affect the functioning of the Board or the credit and reputation

of the Company.

4. When a Director tenders his or her resignation for any reason, said Director shall provide,

and the Board of Directors shall require, an explanation of the reasons for said resignation in a

letter to be issued to all members of the Board of Directors.

5. Furthermore, at least every four years, the Board of Directors shall be assisted in carrying out

an assessment by an external consultant, the independence of which shall be verified by the

Appointments and Compensation Committee.

It should be noted in addition to the foregoing that the Company's Board of Directors has

approved a Director Selection Policy. In accordance with said Policy, the director

selection/reappointment process is aimed at establishing a properly balanced Board of

Directors. Candidates whose appointment would contribute to diversity within the Board of

Directors as regards knowledge, experience, origins, nationalities and gender will be promoted.

The candidates for the position of Director of the Company must be qualified professionals of

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good repute with recognized abilities, experience and proper training. Candidates for the

position of director will be selected based on the analysis completed by the Board of Directors,

with the assistance and report from the Appointments and Compensation Committee, of the

needs of the Company and its Group companies. Any director may suggest candidates for the

position of director, provided said candidates meet the requirements set forth in the

aforementioned policy. The selection process shall not suffer from any implicit biases that

could result in any type of discrimination.

As a supplement to section C.1.45, it is worth noting that the General Meeting is informed

through the Annual Compensation Report –which was submitted to an advisory vote– and the

Annual Corporate Governance Report –which forms part of the Annual Financial Statements–

of the primary conditions of the agreements (including severance pay for termination of the

agreement) with the managing directors or other individuals who are granted executive duties

by virtue of any other means. As regards the Company's officers that report directly to the

board or to any of its members, information is provided on their overall compensation as well

as on the existence, as the case may be, of agreements for severance pay, guarantee clauses or

"golden parachutes."

As of 31 December 2017, there were no agreements between Pharma Mar, S.A. and its

directors, officers or employees providing for severance payments in case of resignation,

wrongful dismissal (in this case, beyond that legally provided) or termination of the labor

relationship by virtue of a public tender offer, excluding as provided in section C.1.45.

As a supplement to section C.2.1:

- As regards the rules on organization and functioning of the Audit Committee, Article 13.1 of

the Board Regulations states that it shall be comprised of a minimum of three and maximum of

five Directors appointed by the Board and that its members shall exclusively include Non-

Executive Directors, with a majority of its members being Independent Directors, one of which

shall be appointed in consideration of his or her knowledge and experience in the area of

accounting, auditing or both. The members of the Committee shall collectively have the

relevant technical expertise in relation to the sector of activity in which the company operates.

The position of Secretary shall be held by one of the Directors on the Committee, the Board

Secretary, the Vice Secretary, or the Legal Counsel of that body, as determined by the Board.

Its meetings may be attended by, whenever deemed convenient by its Chairman, in addition to

the external auditor and the Company's internal auditor, any employee of the Company whose

activity may be related to the duties performed by the Committee.

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The Chairman of the Committee shall be appointed by the Board from among the Independent

Directors on the Committee and shall be replaced every four years but may be reappointed

one year after removal thereof has lapsed, regardless of his or continued membership or

reappointment as a member of the aforesaid Committee. In the absence or inability of the

Chairman to perform his or her duties, the Independent Director on the Committee, as

temporarily designated for such purpose by the Board of Directors or, otherwise, the oldest

Committee member, shall replace the Chairman.

The Committee shall meet as often as the Chairman calls a meeting, when so resolved by at

least two of its members or at the request of the Board. The meetings shall be held at the

registered offices or any other location designated by the Chairman and indicated in the

meeting notice. The necessary quorum shall be met when the majority of its members attend,

in person or by proxy, adopting resolutions by the favorable vote of the majority of its

members in attendance at the meeting. In the event of a tie, the Chairman or Acting Chairman

shall have the casting vote.

The Audit Committee held eight meetings in 2017, in which it addressed, inter alia, the

following matters: (i) proposed reappointment of the external auditors for fiscal year 2017,

including the proposal of the fees for said auditors, to the Board of Directors for submission to

the General Meeting; (ii) received an independence statement from the external auditors as

well as information on the additional services provided and issued the auditor independence

report as required under Art. 529 quaterdecies.4 e) LSC; (iii) monitored the preparation and

presentation of all required financial information; (iv) held several meetings with the

Company's auditors in which the auditors provided information on, inter alia, the audit plan for

fiscal year 2017; (v) took note of and approved the future inclusion in the consolidation group

of certain new companies currently in the process of incorporation; (vi) oversaw the

effectiveness of the Company's internal controls and risk management systems and, in

particular, of the internal financial reporting control system (SCIIF), by virtue of the internal

auditor, approving the Pharma Mar Group's internal auditing plan and related budget; and (vii)

held meetings with the officers from the various Group companies, receiving financial

information for the current year as well as information on risks and outlook.

- The Appointments and Compensation Committee held seven meetings in 2017, in which it

carried out, inter alia, the following tasks:

(i) submitted a report to the Board of Directors on the achievement of variable compensation

targets by the Executive Chairman in 2016;

(ii) proposed 2017 targets to the Board of Directors for the regulated variable compensation

tranche for the Company's top executive;

(iii) proposed 2017 salary adjustments and changes in the conditions of the senior managers of

Pharma Mar to the Board of Directors;

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(iv) verified the information included in the 2016 Annual Report on Compensation of Directors

for submission to the Board of Directors;

(v) submitted to the Board of Directors the annual report on the independent directors of

Pharma Mar, assessing compliance of the independent directors with the independence

criteria set forth in the Spanish Capital Corporations Law;

(vi) pre-reported to the Board of Directors regarding related-party transactions required to be

submitted for Board approval;

(vii) submitted a report to the Board of Directors on the functioning, composition and

performance of the Appointments and Compensation Committee during 2016 to enable the

Board to assess such performance; submitted a report to the Board on the activities and

assessment of the performance of the Board of Directors, of the Board Chairman and of the

Directors in 2016;

(viii) coordinated and managed the process for assessing performance of the Board and its

Committees in 2016, with the assistance of an external consultant;

(ix) submitted a Stock Ownership Plan to the Board of Directors, for approval by the General

Meeting, applicable to employees and officers of the Group as relates to variable

compensation for meeting targets in 2017 (to be implemented in fiscal year 2018); and

(x) analyzed compensation applied to the Group companies' executive positions, in order to

become acquainted with the different compensation systems in use and thus ensure that

individual compensation is proportionate.

In relation to section D.3, it is worth noting that:

As regards the service provision referring to the director ROSP CORUNNA PARTICIPACIONES

EMPRESARIALES, S.L., the company Talleres Trébore, S.L., the sole shareholder of which is

María Sandra Ortega Mera, who is the controlling shareholder of ROSP CORUNNA

PARTICIPACIONES EMPRESARIALES, S.L., provided graphic design, layout, printing and

merchandising services to Pharma Mar, S.A. totaling €15 thousand in fiscal year 2017.

In relation to section E.3, it is worth noting that: A.

Environmental Risks

Competency

The chemical pharmaceuticals market is extremely competitive. Multinational companies,

small and medium sized domestic companies and generic drug manufacturers participate in

this market.

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The profits of the Pharma Mar Group may be affected by the launch of new or innovative

products, technical and technological advances or launches of generic brands by competitors.

Industrial Property. Patents.

Industrial property is a key asset for the Pharma Mar Group. Effective protection of these

assets is critical to ensure reasonable returns on investments in R&D. Industrial property may

be protected through patents, trademarks, trade names and domain registrations, etc.

In most countries –including in the United States and EU member states–, patent rights are

granted for a period of 20 years. The effective time of protection ultimately depends on the

length of the development period for the medication before its launch. In order to compensate

in some way for this long development period and the need to obtain authorization prior to

commercializing medications, some markets, including the United States and the European

Union, allow the extension of patents, under certain circumstances, for up to five years.

An invention that is not sufficiently protected or extremely long development periods that

limit the useful life of the patent are inherent risks in the pharmaceutical industry.

Regulation

The chemical pharmaceuticals sector is a highly regulated sector. The requirements related to

research, clinical trials, registration and manufacturing of the medication, technical validation

of production standards and even the commercialization of the medications are all regulated.

These requirements have increased in recent years and this trend is expected to continue.

The prices of pharmaceutical products are controlled and regulated by the government in most

countries, and its is the government that has the authority to approve, deny or even preclude

the reimbursement of the product cost. In recent years, price reductions have been applied

and benchmark prices have been approved.

Availability of capital

Markets are not always open and the strong investment made by the Pharma Mar Group in

R&D each year requires that the company turn to different financing sources, credit markets or

capital markets to finance its growth, implement its strategy and generate future financial

results.

Shareholders

As with any listed company, there is a risk that any given shareholder could consider that a

decision made by the Board of Directors or officers of the Group has harmed its interests as a

shareholder and file a claim to such effect.

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B. Operational Risks

Prices of key materials

Deviations from expected prices, as well as the company's strategy for purchasing and stocking

key materials, expose the company to excessive production costs or losses for keeping

materials in stock.

Health and Safety

Not providing a safe workplace for the workers would expose the Group to significant costs,

loss of reputation and other expenses.

Health and safety controls are comprehensive, continually seeking to make improvements.

Direct exposure of the employees working in the laboratories to new natural or synthetic

compounds –the potential adverse effects of which are unknown– generates theoretical

health and safety risks in addition to the regular risks inherent in managing chemical products.

Environmental

Environmental risks could expose the companies to potentially significant liabilities. Elevated

risk exposure derives from potential third party claims for damage or loss to persons, property

and/or the environment caused by different types of pollution.

The Company's production processes in general have a very low risk as regards environmental

impact (noise, smoke, spills, etc.) and are regularly revised both internally and by external

inspection bodies.

Product development

The Group applies a significant amount of its resources to research and development of new

pharmaceutical products. As a result of the length of the development processes, technological

challenges, regulatory requirements and intense competition, it cannot be guaranteed that all

of the compounds currently in development as well as those that may be developed in the

future will reach the market and have commercial success.

C. Reporting Risks

If the internal flow of information within the Group does not function properly, there could be

risk of misalignment with the strategies and risk of making incorrect or untimely decisions.

Market Communications

67

On the other hand, the Group is required to present certain financial information and, in

general, relevant events in an accurate, complete and timely manner. If not completed in this

manner, the company would face the risk of sanctions and loss of credibility.

Pharma Mar management and its Board of Directors hold insider information on the

performance of the Group.

Reporting Systems

Failure to maintain adequate access to reporting systems (data or programs) could result in

unauthorized knowledge, unauthorized access, improper use or mistaken delivery of

confidential information.

On the other hand, if important information is not available at the time necessary, this could

adversely affect the continuity of the organization's critical processes and operations.

Due to constant technological advances, the Pharma Mar Group continually adjusts its physical

and legal security policies, which are linked to the reporting and communication systems.

D. Financial Risks

a) Market Risk

Price Risk

The Group is exposed to price risk in relation to the equity instruments recognized as available

for sale, as well as in relation to the price of interests in listed investment funds, the changes in

the fair value of which are recognized in the income statement. As relates to listed

commodities, transactions of the Group in the consumer chemicals sector are affected by oil

prices.

Investments in equity instruments available for sale refer to interests in foreign companies of

the biopharmaceutical industry. Nevertheless, the volume of the Group's investments in this

type of investment is of limited relevance in the context of the Group's operations.

Interest rate risk for cash flows and fair value

The Group's interest rate risk stems from its financial investments in convertible interest

bearing financial assets. Investments in interest bearing financial assets include government

bonds and interest bearing deposits at a variable interest rest, linked to the Euribor.

Funds not linked to variable interest rates expose the Group to interest rate risk over the cash

flows. Funds not linked to fixed interest rates expose the Group to interest rate risk over the

fair market value.

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Exchange rate risk

Exchange rate risk arises in future commercial transactions, recognized assets and liabilities

and net investments in foreign transactions. The Company is exposed to exchange rate risk in

its foreign exchange transactions, in particular in U.S. Dollars.

b) Credit Risk

Credit risk arises from financial investments with banks.

c) Liquidity Risk

The risk of not obtaining the funds needed to meet all payment obligations at the time they fall

due.

In relation to section E.6, it is worth noting that:

A. Environmental Risks

Industrial Property. Patents.

The Pharma Mar Group has a rigorous patents policy that aims to protect new inventions

obtained through R&D activities. In addition to the protection that can be obtained for new

active ingredients discovered, the Group also works to actively protect new formulations,

manufacturing processes, medical uses and new methods for administering the medication.

The Group has a system for managing the life cycle of the patents, including patent

departments that regularly review the status of the patents in coordination with the regulatory

affairs department. Furthermore, the Group looks out for potential violations of our patents by

other companies in order to initiate legal proceedings, as necessary.

Regulation

In order to offset the risks arising from ongoing and new legal requirements and regulations,

the Group makes it decisions and designs its business processes based on an exhaustive

analysis of these matters, provided by our own experts and by reputable external specialists,

as deemed necessary.

Availability of capital

The Group has significantly fractioned the risk across different credit institutions, which

provides the Company with greater flexibility and limits the impact in the event that any of its

credits are not renewed.

Furthermore, the Group has issued long-term debt to diversify its financing sources.

69

Shareholders

The Group has contracted a liability policy for its directors and officers, which covers the risk of

any given shareholder considering that a decision made by the Board of Directors or officers of

the Group has harmed its interests as a shareholder and thus filing a claim.

B. Operational Risks

Prices of key materials

The Group carries out a detailed analysis of the prices at the beginning of the year, working

with our suppliers in order to establish a closed price for the whole year. Based on this, the

cost price of the products is calculated. These prices are monitored on a monthly basis in case

any amendment is required, although raw materials derived from petroleum are already

experience strong variations that are not always predictable (butane, solvents, plastics. etc.).

Health and Safety

The Group has implemented an Occupational Risk Prevention System, compliance with which

is regularly audited.

The Company holds accident and civil liability insurance policies.

The parent company of the Group, whose workforce represents more than 50% of total Group

employees, has obtained the OHSAS 18001 Certification for occupational health and safety

management.

Environmental

Waste is managed through companies authorized and deemed competent by the

environmental authorities for recycling and waste management. Regular verifications of legal

compliance are completed and, where necessary, atmospheric emissions control systems are

in place. The company also has water purification systems and clean points for proper waste

separation.

Two companies within the Group hold ISO 14001 Certification, i.e. a management tool for

systematic control over interactions between the environment and the activities and processes

of the company, all with a view to improving environmental performance and minimizing

impact. This environmental management system is audited annually by independent certifying

companies.

Product development

In order to provide maximum assurance of the effective and efficient use of our resources, the

Group has implemented a transversal work structure among the different departments,

project teams and reporting systems in order to internally monitor research and development

projects.

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C. Reporting Risks

Market Communications

Control systems are in place that allow us to determine who has access to this information at

any given time and which are primarily directed at compliance with Regulation (EU) No.

596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse and

with the Spanish Securities Market Law, as relates to insider information.

The Monitoring Committee, comprised of three members appointed by the Board of Directors,

shall ensure proper application of the Internal Regulations on Conduct in Securities Markets.

Reporting Systems

The Pharma Mar Group has a strategic information systems plan designed to ensure the

proper functioning and use of the information systems supporting the company's business

processes and to ensure compliance with applicable regulations.

The Pharma Mar Group has various Data Processing Centers. To the extent possible, the same

technologies are used in said centers in order to simplify technological diversity as much as

possible and to share services that are likely to be used by more than one Business Unit,

primarily as regards security, storage and maintenance.

Access to this information is personalized and is controlled by current technology, also using

redundant and tolerant systems as regards errors in those systems deemed critical to the

performance of the business, as well as procedures to restore said systems in the shortest time

possible. The integrity of the information is in any case guaranteed using backup systems and

files.

The Pharma Mar Group uses third party technological infrastructures. It holds service level

agreements with these parties that ensure the minimum impact of any potential breakdowns

thereof and which include, in general, copies or duplicates of the infrastructures.

D. Financial Risks

The Group is exposed to a wide array of risks. The finance department is responsible for

managing risks in accordance with the policies approved by the Board of Directors. This

department identifies, assesses and hedges financial risks. The Board provides steps for the

management of overall risk, as well as for specific areas such as interest rate risk, liquidity risk,

use of derivatives and non-derivatives and investment of excess liquidity.

a) Market Risk

Price Risk

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As regards financial assets, the Group's policy involves placing treasury stock in low risk and

high liquidity financial assets in order to ensure the availability of funds. For this purpose,

these financial assets are comprised practically entirely of public debt and deposits in credit

institutions with high credit quality and as such fluctuations in their value are immaterial.

Interest rate risk for cash flows and fair value

Based on the different scenarios, on some occasions the Group manages the interest rate risk

of cash flows through interest rate swaps, from variable to fixed interest rates. The economic

effect of these interest rate swaps is to convert outside funds with variable interest rates to

fixed interest rates. Under these interest rate swaps, the Group undertakes to exchange the

difference, on a regular basis, between the fixed and variable interest rates, as calculated

based on the notional principals contracted.

Exchange rate risk

Management did not consider it necessary to establish any foreign exchange risk hedging

policy against the functional currency.

b) Credit Risk

The banks and financial institutions with which the Group collaborates are considered

independent. When the Group acquires additional financial investments other than public

debt, it shall follow the below stated policies in making such investments:

- Acquisition of fixed income funds invested in public or private debt equity (bonds,

letters of credit, promissory notes of the company), insurance, in general, which

provide for periodic interest payments.

- Acquisition of monetary funds that include short-term fixed income (max. 18 months),

in which security is prioritized in exchange for generally lower returns as compared to

other investments.

c) Liquidity Risk

Prudent management of liquidity risk requires that enough cash and tradable securities be

held, that enough financing be available through committed credit facilities and that the

company have the ability to liquidate market positions. The finance department of the Group

has the objective of maintaining flexibility in financing through availability of credit lines, as

well as sufficient funds in financial assets in order to meet their obligations, in particular those

within the biopharmaceutical segment.

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annex i annual corporate governance report … · on 23 november 2017, the company notified the...

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